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Press release from Marketwire

The Jean Coutu Group - Third Quarter Fiscal Year 2011 Results

Operating income before amortization ("OIBA") amounted to $76.1 million, an increase of 6.4% compared with the third quarter of fiscal year 2010.

Friday, January 07, 2011

The Jean Coutu Group - Third Quarter Fiscal Year 2011 Results07:00 EST Friday, January 07, 2011LONGUEUIL, QUEBEC--(Marketwire - Jan. 7, 2011) - The Jean Coutu Group (PJC) Inc. (the "Company" or the "Jean Coutu Group") (TSX:PJC.A) reported its financial results today for the third quarter of fiscal year 2011 ended November 27, 2010.Summary of results(Unaudited, in millions of Canadian dollars, except per share amounts)Q3-2011Q3-201039 weeks 201139 weeks 2010$$$$Revenues677.3678.11,942.21,906.1Operating income before amortization ("OIBA")76.171.5215.5197.6Share of loss in Rite Aid Corporation a company subject to significant influence ("Rite Aid")---55.2Net earnings48.044.6133.869.8Per share0.210.190.570.30Earnings before specific items and share of loss in Rite Aid47.244.2133.5119.8Per share0.210.190.570.51HighlightsNet earnings per share amounted to $0.21 compared with $0.19 during the third quarter of fiscal year 2010. OIBA increased by 6.4% during the third quarter of fiscal year 2011 compared with the same period last year. The PJC Jean Coutu pharmacies' network has continued its expansion by opening 16 new stores during the quarter. Financial results "We are satisfied with the results of the third quarter of fiscal year 2011. Net earnings showed a solid increase in spite of a slight decrease of revenues compared to the same period last year when over-the-counter medication sales recorded a significant rise attributed to the concern of consumers confronted with the A (H1N1) flu outbreak. By picking up the pace of our expansion projects and implementing our business plan, we achieved the objectives we had set," said François J. Coutu, President and Chief Executive Officer. "Moreover we believe that the impact on consolidated results of the Company of the measures aiming at reducing the prices of generic drugs should be counterbalanced in the short term by the normal growth of the Company's operations." Revenues Revenues consist of sales and other revenues derived from franchising activities. Merchandise sales to PJC franchisees through our distribution centres account for most of our sales.Revenues amounted to $677.3 million during the third quarter ended November 27, 2010 compared with $678.1 million during the third quarter ended November 28, 2009, a decrease of 0.1%. The consumers' cautiousness in view of the A(H1N1) flu had contributed to the increase of the over-the-counter drug sales during the third quarter of the previous fiscal year. For the 39-week period of fiscal year 2011, revenues amounted to $1,942.2 million compared with $1,906.1 million during the 39-week period of the previous fiscal year, an increase of 1.9%. This increase is attributable to overall market growth and the expansion of the Jean Coutu Group network of franchised stores, even with deflationary impact on revenues caused by the introduction of the generic version of large volume drugs during this period.OIBA OIBA increased by $4.6 million to $76.1 million for the third quarter of fiscal year 2011 compared with $71.5 million for the third quarter of fiscal year 2010. The increase is mostly attributable to a strong operational performance in the franchising activities and of the subsidiary Pro Doc Ltd. Gross sales of Pro Doc products, net of intercompany's eliminations, amounted to $42.0 million in the third quarter ended November 27, 2010 compared with $26.8 million in the same period of fiscal year 2010. OIBA as a percentage of revenues ended the third quarter of fiscal year 2011 at 11.2% compared with 10.5% for the third quarter of the previous fiscal year.For the year to date period of fiscal year 2011, OIBA increased by $17.9 million to $215.5 million compared with $197.6 million during the year to date period of fiscal year 2010. OIBA as a percentage of revenues ended the 39-week period of fiscal year 2011 at 11.1% compared with 10.4% for the same prior year period.Share of loss in Rite Aid, a company subject to significant influence No share of loss in Rite Aid was accounted in the Company's earnings during the third quarter of fiscal year 2011 as well as during the third quarter of the previous fiscal year.During the fiscal year ended February 27, 2010, the Company's share of loss in Rite Aid exceeded the carrying value of its investment. As required by Canadian GAAP, the Company reduced the carrying value of its investment down to zero and ceased recording its share of loss in Rite Aid exceeding the carrying value of its investment, since the Company has not guaranteed Rite Aid's obligations and is not committed to provide it with further financial support. For the third quarter of fiscal year 2011, the Company's unrecognized share of loss in Rite Aid amounted to $25.2 million. As at November 27, 2010, the Company's total unrecognized share of loss in Rite Aid amounted to $189.1 million and the market value of equity interest in Rite Aid was US$236.9 million.Net earnings Net earnings amounted to $48.0 million ($0.21 per share) during the third quarter ended November 27, 2010 compared with $44.6 million ($0.19 per share) during the third quarter ended November 28, 2009. Net earnings amounted to $133.8 million ($0.57 per share) for the 39-week period of fiscal year 2011 compared with $69.8 million ($0.30 per share) for the 39-week period of fiscal year 2010.Earnings before specific items and share of loss in Rite Aid amounted to $47.2 million ($0.21 per share) during the third quarter of fiscal year 2011 compared with $44.2 million ($0.19 per share) during the third quarter of fiscal year 2010, an increase of 6.8%. Earnings before specific items and share of loss in Rite Aid amounted to $133.5 million ($0.57 per share) for the year to date period of fiscal year 2011 compared with $119.8 million ($0.51 per share) for the year to date period of fiscal year 2010.Information on the Jean Coutu Group network of franchised stores The Company carries on the franchising activity under the banners of PJC Jean Coutu, PJC Clinique, PJC Jean Coutu Santé and PJC Jean Coutu Santé Beauté, operates two distribution centres and coordinates several other services for the benefit of its franchisees.On a same-store basis, PJC network retail sales grew 0.1%, pharmacy sales gained 0.7% and front-end sales decreased by 1.7% in the third quarter of fiscal year 2011 compared with the third quarter of the previous fiscal year. During the third quarter ended November 27, 2010, sales of non-prescription drugs, which represented 9.2% of total retail sales, decreased by 2.0%, whereas these sales had increased by 16.0% during the third quarter of the previous fiscal year. The consumers' cautiousness in view of the A (H1N1) flu had contributed to the increase of the over-the-counter drug sales during the third quarter of the previous fiscal year.Due to the introduction of the generic version of large volume drugs during the last 12 months, generic drugs reached 55.0% of drugs' prescriptions during the third quarter of fiscal year 2011 compared with 51.3% during the same period of the previous fiscal year. The increase in the number of generic drugs' prescriptions with lower selling prices had a deflationary impact on the pharmacy's retail sales. The introduction of new generic drugs reduced pharmacy's retail sales growth by 3.5% during the third quarter.Network performance (1)Q3-2011Q3-201039 weeks 201139 weeks 2010Retail sales (unaudited, in millions of dollars)$945.5$923.2$2,790.1$2,685.9Retail sales growth (in %)Total storesTotal2.4%8.6%3.9%7.4%Pharmacy2.7%8.8%4.1%8.9%Front-end1.3%8.9%2.8%5.4%Same storeTotal0.1%6.3%1.6%4.7%Pharmacy0.7%6.5%2.2%6.0%Front-end-1.7%6.6%-0.2%3.0%(1)Franchised outlets' retail sales are not included in the Company's Consolidated Financial StatementsPJC network of franchised stores development In the third quarter of fiscal year 2011, there were 16 store openings including the relocation of 5 stores in the PJC network of franchised stores. In addition, 6 stores were significantly renovated or expanded.Capital-stock On April 29, 2010, the Company announced its intention to purchase for cancellation, if it is considered advisable, up to 11,110,000 of its outstanding Class A subordinate voting shares, representing approximately 10% of the current public float of such shares, over a 12-month period ending no later than May 3, 2011. The shares were or will be purchased through the facilities of the Toronto Stock Exchange and in accordance with its requirements.For the 13-week period ended November 27, 2010, the Company purchased 2,607,700 Class A subordinate voting shares at an average price of $9.31 per share for a total consideration of $24.3 million including related costs. An amount of $10.3 million representing the excess of the purchase price over the carrying value of the purchased shares was included in deficit. For the 39-week period ended November 27, 2010, the Company purchased 5,197,700 Class A subordinate voting shares at an average price of $9.09 per share for a total consideration of $47.3 million including related costs. An amount of $19.3 million representing the excess of the purchase price over the carrying value of the purchased shares was included in deficit. The shares purchased during the 39-week period ended November 27, 2010 were cancelled.Dividend The Board of the Jean Coutu Group declared a quarterly dividend of $0.055 per share. This dividend will be payable on February 4, 2011, to all holders of Class A subordinate voting shares and holders of Class B shares listed in the Company's shareholder ledger as of January 21, 2011. Non-GAAP financial measures This press release contains certain financial measures that are not defined by the Canadian Generally Accepted Accounting Principles ("GAAP"). These measures have been reconciled with performance measures defined by Canadian GAAP in the related section of this press release.Strategies and outlook With its operations and financial flexibility, the Company is very well positioned to capitalize on the growth in the drugstore retail industry. Demographic trends are expected to contribute to growth in the consumption of prescription drugs and to the increased use of pharmaceuticals as the primary intervention in individual healthcare. Management believes that these trends will continue and that the Company will maintain its growth in revenues through differentiation and quality of offering and service levels to its network of franchised stores, with a focus on sales growth, its real estate program and operating efficiency. The growth in the number of generic drugs' prescriptions will however have a deflationary impact on retail sales in the pharmacy section but the contribution of Pro Doc will have a positive impact on the consolidated margins.The date of the first step in the implementation of the price reductions of generic drugs announced November 5, 2010 by the "Conseil du médicament du Québec" was set for December 17, 2010. Additional price reductions will be implemented until April 2012, in order to ensure that generic drug prices are not higher than any selling prices granted by the insurance programs of other provinces. Also, the 5% rebate offered by generic drugs manufacturers to distributors and representing the profit margin of the distributors has been abolished since December 17, 2010. Maximum administration fees of 6% are therefore added to the price of generic drugs by wholesalers since that date. Finally, a draft regulation was published in the "Gazette officielle du Québec" on December 22, 2010 to amend the maximum professional allowances authorized to owner pharmacists. Therefore, as of April 1, 2011, that percentage will be reduced from the previous 20% to 16.5% and, as of April 1, 2012, from 16.5% to 15%. The consolidated results of the Company will be affected by these measures but we believe that the impact will be offset in the short term by the normal growth of the Company's operations.Conference call Financial analysts and investors are invited to attend the third quarter of fiscal year 2011 results conference call to be held on January 7, 2011, at 9:00 AM (ET). The call-in number is 514-861-2255 or toll free at 1 866-696-5910 – access code 1366280 followed by pound sign (#). Media and other interested individuals are invited to listen to the live or deferred broadcast on The Jean Coutu Group corporate website at. A full replay will also be available by dialling 514-861-2272 or toll free at 1 800-408-3053 until February 6, 2011. The access code is 3825216, followed by pound sign (#).Supporting documentation (Management's discussion and analysis and investor presentation) is available at www.jeancoutu.comhttp:/// using the investors' link. Readers may also access additional information and filings related to the Company using the following link to the www.sedar.com website.About The Jean Coutu Group The Jean Coutu Group is one of the most trusted names in Canadian pharmacy retailing. The Company operates a network of 389 franchised stores located in the provinces of Québec, New Brunswick and Ontario under the banners of PJC Jean Coutu, PJC Clinique, PJC Santé and PJC Santé Beauté, and employs over 17,000 people. Furthermore, as of December 2007, the Jean Coutu Group owns Pro Doc Ltd ("Pro Doc"), a Québec-based subsidiary and manufacturer of generic drugs. The Company also holds a significant interest in Rite Aid Corporation ("Rite Aid") a national chain of drugstores in the United States with over 4,700 drugstores in 31 states and the District of Columbia. This press release contains forward-looking statements that involve risks and uncertainties, and which are based on the Company's current expectations, estimates, projections and assumptions made by the Jean Coutu Group in light of its experience and its perception of historical trends. All statements that address expectations or projections about the future, including statements about the Company's strategy for growth, costs, operating or financial results, are forward-looking statements. All statements other than statements of historical facts included in this MD&A, including statements regarding the prospects of the Company's industry and the Company's prospects, plans, financial position and business strategy may constitute forward-looking statements within the meaning of the Canadian securities legislation and regulations. Some of the forward-looking statements may be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimate", "project", "could", "anticipate", "plan", "foresee", "believe" or "continue", the negatives of these terms, the variations of them or the use of other similar terms. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. These statements do not reflect the potential impact of any non-recurring items or of any mergers, acquisitions, dispositions, asset write-downs or other transactions or charges that may be announced or that may occur after the date hereof. While the list below of cautionary statements is not exhaustive, some important factors that could affect our future operating results, financial position and cash flows and could cause our actual results to differ materially from those expressed in these forward-looking statements, namely changes in the legislation or the regulatory environment as it relates to the sale of prescription drugs and the pharmacy exercise, the success of the Company's business model, changes in laws and regulations, or in their interpretations, changes to tax regulations and accounting pronouncements, the cyclical and seasonal variations in the industry in which we operate, the intensity of competitive activity in the industry in which we operate, the supplier and brand reputations, our equity interest in Rite Aid Corporation ("Rite Aid"), our ability to attract and retain pharmacists, labour disruptions, including possibly strikes and labour protests, the accuracy of management's assumptions and other factors that are beyond our control.These and other factors could cause our actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. Investors and others are cautioned that undue reliance should not be placed on any forward-looking statements. For more information on the risks, uncertainties and assumptions that would cause the Company's actual results to differ from current expectations, please also refer to the Company's public filings available at www.sedar.com and www.jeancoutu.com. In particular, further details and descriptions of these and other factors are disclosed in the Company's Annual Information Form under "Risk Factors" and in the "Risks and uncertainties" section of the MD&A for the fiscal year ended February 27, 2010. We expressly disclaim any obligation or intention to update or revise any forward-looking statements, whether as a result of new information, future events or any other reason, unless required by the applicable securities laws.THE JEAN COUTU GROUP (PJC) INC.Consolidated statements of earnings13 weeks39 weeksFor the periods ended November 27, 2010 and November 28, 20092010200920102009(unaudited, in millions of Canadian dollars, unless otherwise noted)$$$$Sales614.7616.11,757.31,724.7Other revenues62.662.0184.9181.4677.3678.11,942.21,906.1Operating expensesCost of goods sold545.4554.61,566.41,555.0General and operating expenses59.655.2171.1162.7Amortization of property and equipment4.34.612.713.1609.3614.41,750.21,730.8Operating income68.063.7192.0175.3Financing expenses (revenues)(0.3)(0.4)0.8(4.5)Earnings before the following items68.364.1191.2179.8Share of loss in Rite Aid, a company subject to significant influence---55.2Income taxes20.319.557.454.8Net earnings48.044.6133.869.8Basic and diluted earnings per share, in dollars0.210.190.570.30Consolidated statements of comprehensive income13 weeks39 weeksFor the periods ended November 27, 2010 and November 28, 20092010200920102009(unaudited, in millions of Canadian dollars)$$$$Net earnings48.044.6133.869.8Other comprehensive incomeForeign currency translation adjustments---(6.7)Comprehensive income48.044.6133.863.1THE JEAN COUTU GROUP (PJC) INC.Consolidated statements of changes in shareholders' equity13 weeks39 weeksFor the periods ended November 27, 2010 and November 28, 20092010200920102009(unaudited, in millions of Canadian dollars)$$$$Capital stock, beginning of period636.9650.2650.8648.1Redemption of stock(14.0)-(28.0)-Options exercised-0.20.12.3Capital stock, end of period622.9650.4622.9650.4Contributed surplus, beginning of period33.132.332.728.4Stock-based compensation cost0.20.20.60.6Stock-based compensation in Rite Aid, a company subject to significant influence---3.5Contributed surplus, end of period33.332.533.332.5Deficit, beginning of period(203.0)(320.2)(254.0)(324.1)Net earnings48.044.6133.869.8Dividends(12.9)(10.6)(38.7)(31.9)Excess of purchase price over carrying value of Class A subordinate voting shares acquired(10.3)-(19.3)-Deficit, end of period(178.2)(286.2)(178.2)(286.2)Accumulated other comprehensive income,beginning of period80.196.580.1103.2Foreign currency translation adjustments---(6.7)Accumulated other comprehensive income,end of period80.196.580.196.5Total shareholders' equity558.1493.2558.1493.2THE JEAN COUTU GROUP (PJC) INC.Consolidated balance sheetsAs at November 27, 2010As at February 27, 2010(in millions of Canadian dollars)$$(unaudited)(audited)AssetsCurrent assetsAccounts receivable218.8194.1Inventories177.4163.8Prepaid expenses and others8.88.8405.0366.7Investments63.661.0Property and equipment414.7394.6Goodwill36.036.0Other long-term assets159.7126.61,079.0984.9LiabilitiesCurrent liabilitiesBank overdraft19.713.3Accounts payable and accrued liabilities224.4195.2Income taxes payable27.736.1271.8244.6Long-term debt219.8199.9Other long-term liabilities29.330.8520.9475.3Shareholders' equityCapital stock622.9650.8Contributed surplus33.332.7Deficit(178.2)(254.0)Accumulated other comprehensive income80.180.1(98.1)(173.9)558.1509.61,079.0984.9THE JEAN COUTU GROUP (PJC) INC.Consolidated statements of cash flows13 weeks39 weeksFor the periods ended November 27, 2010 and November 28, 20092010200920102009(unaudited, in millions of Canadian dollars)$$$$Operating activitiesNet earnings48.044.6133.869.8Items not affecting cashAmortization8.17.823.522.3Change in fair value of third party asset-backed commercial paper and related options of repayment(0.8)(0.7)(0.3)(4.7)Share of loss in Rite Aid, a company subject to significant influence---55.2Future income taxes1.41.63.79.0Other0.80.12.2(1.8)57.553.4162.9149.8Net changes in non-cash asset and liability items(12.9)7.5(23.0)(5.4)Cash flow related to operating activities44.660.9139.9144.4Investing activitiesInvestments(1.1)(0.5)(5.3)0.2Purchase of property and equipment(11.7)(10.9)(35.0)(35.0)Proceeds from disposal of property and equipment0.51.13.01.2Other long-term assets(29.8)(5.4)(44.3)(27.2)Cash flow related to investing activities(42.1)(15.7)(81.6)(60.8)Financing activitiesNet change in revolving credit facility, net of fees24.9(38.3)19.8(53.1)Repayment of long-term debt-(2.9)-(5.4)Issuance of capital stock-0.20.12.3Redemption of capital stock(22.9)-(45.9)-Dividends(12.9)(10.6)(38.7)(31.9)Cash flow related to financing activities(10.9)(51.6)(64.7)(88.1)Net change in cash and cash equivalents(8.4)(6.4)(6.4)(4.5)Bank overdraft, beginning of period(11.3)(19.3)(13.3)(21.2)Bank overdraft, end of period(19.7)(25.7)(19.7)(25.7)THE JEAN COUTU GROUP (PJC) INC.Unaudited additional informationFor the periods ended November 27, 2010 and November 28, 2009(In millions of Canadian dollars )Non-GAAP measuresOperating income before amortization ("OIBA") is not a measure of performance under Canadian generally accepted accounting principles ("GAAP"); however, management uses this performance measure in assessing the operating and financial performance of its operations. Besides, we believe that OIBA is an additional measure used by investors to evaluate operating performance and capacity of a company to meet its financial obligations. However, OIBA is not and must not be used as an alternative to net earnings or cash flow generated by operating activities as defined by GAAP. OIBA is not necessarily an indication that cash flow will be sufficient to meet our financial obligations. Furthermore, our definition of OIBA may not be necessarily comparative to a similar measure reported by other companies. Net earnings, which is a performance measure defined by GAAP, is reconciled hereunder with OIBA.13 weeks39 weeks2010200920102009$$$$Net earnings48.044.6133.869.8Financing expenses (revenues)(0.3)(0.4)0.8(4.5)Share of loss in Rite Aid---55.2Income taxes20.319.557.454.8Operating income68.063.7192.0175.3Amortization of property and equipment4.34.612.713.1Amortization of incentives paid to franchisees (1)3.83.210.89.2Operating income before amortization76.171.5215.5197.6(1)Amortization of incentives paid to franchisees is applied against other revenues in the consolidated financial statements.THE JEAN COUTU GROUP (PJC) INC.Unaudited additional informationFor the periods ended November 27, 2010 and November 28, 2009(In millions of Canadian dollars except per share amounts)Earnings (or earnings per share) before specific items and earnings (or earnings per share) before specific items and share of loss in Rite Aid are non-GAAP measures. The Company believes that it is useful for investors to be aware of significant items of an unusual or non-recurring nature that have adversely or positively affected its GAAP measures, and that the above-mentioned non-GAAP measures provide investors with a measure of performance with which to compare its results between periods without regard to these items. The Company's measures excluding certain items have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation.Net earnings and earnings per share are reconciled hereunder to earnings (and earnings per share) before specific items and earnings (and earnings per share) before specific items and share of loss in Rite Aid. All amounts are net of income taxes when applicable.13 weeks39 weeks2010200920102009$$$$Net earnings48.044.6133.869.8Unrealized foreign exchange losses (gains) on monetary items-0.3-(0.5)Change in fair value of third party asset-backed commercial paper and related options of repayment(0.8)(0.7)(0.3)(4.7)Earnings before specific items47.244.2133.564.6Share of loss in Rite Aid---55.2Earnings before specific items and share of loss in Rite Aid47.244.2133.5119.8Earnings per share0.210.190.570.30Change in fair value of third party asset-backed commercial paper and related options of repayment---(0.02)Earnings per share before specific items0.210.190.570.28Share of loss in Rite Aid---0.23Earnings per share before specific items and share of loss in Rite Aid0.210.190.570.51FOR FURTHER INFORMATION PLEASE CONTACT: Andre BelzileThe Jean Coutu Group (PJC) Inc.Senior Vice-President, Finance and Corporate Affairs450-646-9760ORVice-President, CommunicationsHelene Bisson450-646-9611, Ext. 1165