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Press release from CNW Group

Shoppers Drug Mart Corporation Reports Fourth Quarter Results

Thursday, February 09, 2012

Shoppers Drug Mart Corporation Reports Fourth Quarter Results08:28 EST Thursday, February 09, 2012-     ANNUAL DIVIDEND INCREASED BY 6.0% TO $1.06 PER SHARE-     RENEWAL OF SHARE REPURCHASE PROGRAMTORONTO, Feb. 9, 2012 /CNW/ - Shoppers Drug Mart Corporation (TSX: SC) today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2011.Fourth Quarter Year-Over-Year HighlightsSales increase of 4.3% to $2.607 billionSame-store increase of 3.4%Pharmacy sales increase of 2.8% to $1.177 billionSame-store increase of 2.3%Prescription count increase of 3.9%Same-store increase of 3.8%Front store sales increase of 5.5% to $1.430 billionSame-store increase of 4.4%Net earnings per share of $0.82, an increase of 5.1%Fiscal 2011 HighlightsSales increase of 2.6% to $10.459 billionSame-store increase of 1.9%Pharmacy sales increase of 0.8% to $4.997 billionSame-store increase of 0.6%Prescription count increase of 3.8%Same-store increase of 3.8%Front store sales increase of 4.4% to $5.462 billionSame-store increase of 3.2%Net earnings per share of $2.84, an increase of 4.4%Declared four quarterly dividends of 25 cents per common shareRepurchased 5,202,100 common shares at an aggregate cost of $212 millionFourth Quarter Results (12 Weeks)Fourth quarter sales were $2.607 billion, an increase of 4.3% over the same period last year, driven by moderate sales growth in pharmacy and strong results in the front of the store.  The Company continued to experience sales growth in all regions of the country, led by gains in Western Canada.  On a same-store basis, sales increased 3.4% during the quarter.Prescription sales were $1.177 billion in the fourth quarter, an increase of 2.8% compared to the same period last year.  Growth in the number of prescriptions filled remained strong, however volume growth continues to be offset somewhat by a reduction in average prescription value.  On a same-store basis, prescription sales increased 2.3% during the quarter.  During the fourth quarter of 2011, total prescription counts increased 3.9% compared to the same period last year and were up 3.8% on a same-store basis.  The decrease in average prescription value can be attributed to a reduction in generic prescription reimbursement rates, the result of recently implemented and ongoing drug system reform initiatives in certain jurisdictions of Canada, combined with increasing generic prescription utilization rates.  Generic molecules represented 57.1% of prescriptions dispensed in the fourth quarter of 2011 compared to 55.7% of prescriptions dispensed in the same period last year.  In the fourth quarter of 2011, prescription sales accounted for 45.2% of the Company's sales mix compared to 45.8% of the Company's sales mix in the same quarter of last year.Front store sales were $1.430 billion in the fourth quarter, an increase of 5.5% compared to the same period last year, with the Company experiencing particularly strong sales gains in the beauty, confection and convenient food categories.  The Company's store network development program, which has resulted in a 3.8% increase in selling space compared to a year ago, continues to have a positive impact on sales growth, particularly in the front of the store.  Front store sales growth was also aided by effective marketing campaigns and impactful promotions, strong seasonal programs and solid execution at store-level.  On a same-store basis, front store sales increased 4.4% during the fourth quarter of 2011.Fourth quarter net earnings were $176 million compared to net earnings of $169 million in the fourth quarter of 2010, an increase of 4.2%.  On a fully diluted basis, net earnings per share were 82 cents in the fourth quarter of 2011 compared to 78 cents per share in the same period last year, an increase of 5.1%.  Net earnings for the fourth quarter of 2010 included a $7 million (pre-tax) impairment charge under IFRS related to certain of the Company's store assets.  Excluding the impact of this charge, the Company's adjusted net earnings for the fourth quarter of 2010 were $175 million or 80 cents per fully diluted share.  Strong performance in the front of the store was partially offset by continued investments in pricing and promotional activities, and by further downward pressure on sales and margins in the dispensary as a result of drug system reform initiatives implemented in a number of provinces.  These results also reflect the benefits from cost reduction, productivity and efficiency initiatives in comparable stores, which served to partially offset higher operating expenses at store level associated with continued network growth and expansion initiatives, and increased Associate earnings.  Net earnings for the fourth quarter of 2011 also benefitted from a reduction in the Company's effective income tax rate, partially offset by an increase in financing expenses.  In addition to the earnings factors noted above, the cumulative impact of the Company's share repurchase program had a positive impact on growth in earnings per share as there were 1.5% fewer fully diluted shares outstanding in the fourth quarter of 2011 compared to the same period last year.Commenting on the results, Domenic Pilla, President and CEO stated, "We are pleased with our fourth quarter and full year results for fiscal 2011.  Considering the many challenges that we faced as a Company this past year, I am encouraged by our operating and financial performance.  Looking ahead, the strength of our brand, the quality of our assets and the power of our value proposition, together with the dedication and commitment of our Associate-owners and their teams at store level, have us well-positioned to confront the challenges and capitalize on the opportunities in the rapidly evolving pharmacy marketplace.  On behalf of our shareholders and the Board of Directors, I would like to thank our corporate and regional office employees, along with our Associates and their teams, for their efforts and contributions to our collective success this past year."Fiscal 2011 Results (52 Weeks)Sales in 2011 were $10.459 billion compared to $10.193 billion in 2010, an increase of $266 million or 2.6%.  Sales increased in all regions of the country, with the Company experiencing moderate sales growth in pharmacy and strong results in the front of the store.  The Company's capital investment and store development program, which resulted in a year-over-year increase in selling space of 3.8%, continues to have a positive impact on sales growth.  On a same-store basis, sales increased 1.9% in 2011.Prescription sales were $4.997 billion in 2011 compared to $4.959 billion in 2010, an increase of $38 million or 0.8%, as strong growth in the number of prescriptions filled was largely offset by a further decline in average prescription value.  On a same-store basis, prescription sales increased 0.6% during the year.  During 2011, prescription counts increased 3.8% on both a total and a same-store basis over the prior year.  A reduction in generic prescription reimbursement rates, the result of recently implemented and ongoing drug system reform initiatives in a number of provinces, combined with greater generic prescription utilization rates, had a negative impact on sales dollar growth in pharmacy.  Generic molecules represented 56.9% of prescriptions dispensed in 2011 compared to 54.5% of prescriptions dispensed in the prior year.  In 2011, prescription sales accounted for 47.8% of the Company's sales mix compared to 48.7% in the prior year.Front store sales were $5.462 billion in 2011 compared to $5.234 billion in 2010, an increase of $228 million or 4.4%, with the Company posting sales gains in all core categories, led by cosmetics, food and confection, and other convenience categories.  On a same-store basis, front store sales increased 3.2% in 2011.  In addition to square footage growth, further investments in marketing, pricing and promotional activities throughout the year drove sales and market share gains in the front of the store.Net earnings in 2011 were $614 million compared to $592 million in 2010, an increase of $22 million or 3.7%.  On a fully diluted basis, net earnings per share were $2.84 in 2011 compared to $2.72 in 2010, an increase of 4.4%.  Net earnings for 2011 are inclusive of a third quarter gain on disposal of $3 million (pre-tax) in respect of a sale-leaseback transaction involving certain of the Company's retail properties.  Excluding the impact of this gain, adjusted net earnings for 2011 were $611 million or $2.82 per share compared to adjusted net earnings of $596 million or $2.74 per share in 2010.  In addition to excluding the impact of the aforementioned fourth quarter asset impairment charge under IFRS of $7 million (pre-tax), adjusted net earnings for 2010 also exclude the impact of a third quarter legal settlement charge of $10 million (pre-tax), and a first quarter gain on disposal of $12 million (pre-tax) in respect of a sale-leaseback transaction.  During 2011, strong performance in the front of the store, which was supported by increased investments in pricing and promotional activities, was partially offset by additional downward pressure on sales and margins in the dispensary as a result of drug system reform initiatives implemented in a number of provinces.  These results also reflect the benefits from improved purchasing synergies, along with cost reduction, productivity and efficiency initiatives in comparable stores, which served to partially offset higher operating expenses at store level associated with the Company's network growth and expansion initiatives, and increased Associate earnings.  Net earnings growth in 2011 also benefitted from a reduction in the Company's effective income tax rate, partially offset by an increase in financing expenses.  In addition to the earnings factors noted above, the cumulative impact of the Company's share repurchase program had a modestly positive impact on growth in earnings per share as there were 0.5% fewer fully diluted shares outstanding in 2011 compared to 2010.Store Network DevelopmentDuring the fourth quarter, 10 drug stores were opened or acquired, seven of which were relocations, and three smaller drug stores were closed.  The Company also completed six major drug store expansions during the quarter.  In addition to this activity, eight existing drug stores were remodeled, converting them to smaller prototype formats.  For the fiscal year ended December 31, 2011, the Company opened or acquired 56 drug stores, 32 of which were relocations, consolidated or closed eight smaller drug stores, completed 25 major drug store expansions and converted 49 existing drug stores to smaller prototype formats.  At the end of 2011, there were 1,328 stores in the system, comprised of 1,257 drug stores (1,199 Shoppers Drug Mart/Pharmaprix stores and 58 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé stores), 63 Shoppers Home Health Care stores and eight Murale stores.  During 2011, the selling square footage of the retail store network increased by 3.8%, to in excess of 13.2 million square feet at year end.DividendThe Company also announced today that its Board of Directors has declared a dividend of 26.5 cents per common share, payable April 13, 2012 to shareholders of record as of the close of business on March 30, 2012.  This represents an increase in the Company's quarterly dividend payments of 6.0%, resulting in an annualized dividend of $1.06 per common share.Normal Course Issuer Bid ProgramDuring the fourth quarter of 2011, the Company repurchased 2,510,700 common shares under its normal course issuer bid program at an aggregate cost of $107 million, representing an average repurchase price of $42.50 per common share.  All repurchased shares were subsequently cancelled.  The Company's current normal course issuer bid program will terminate on February 14, 2012.The Company also announced today that its Board of Directors has approved the renewal of its normal course issuer bid program and has authorized the purchase of up to 10,600,000 of its common shares, representing approximately 5.0% of the 212,359,697 common shares currently outstanding, by way of normal course purchases effected through the facilities of the Toronto Stock Exchange (the "TSX").  Under its current normal course issuer bid program that expires February 14, 2012, the Company has repurchased 5,202,100 common shares at an aggregate cost of $212 million, representing an average repurchase price of $40.65 per common share.  All repurchased shares were subsequently cancelled.  Subject to approval of the TSX, it is anticipated that purchases under the new program may commence on February 15, 2012 and will terminate on February 14, 2013, or on such earlier date as the Company may complete its purchases pursuant to a Notice of Intention to be filed with the TSX.  Purchases will be made by the Company in accordance with the requirements of the TSX and the price which the Company will pay for any such common shares will be the market price of any such common shares at the time of acquisition, or such other price as may be permitted by the TSX.  In connection with the normal course issuer bid program, the Company intends to enter into an automatic purchase plan with its designated broker to allow for purchases of its common shares during certain pre-determined black-out periods, subject to certain parameters as to price and number of shares.  Outside of these pre-determined black-out periods, shares will be repurchased in accordance with management's discretion, subject to applicable law.  For purposes of the TSX rules, a maximum of 178,466 common shares may be purchased by the Company on any one day under the bid, except where purchases are made in accordance with the "block purchase exception" of the TSX rules.  Common shares purchased by the Company will be cancelled.Commenting on the dividend increase and the renewal of the share repurchase program, Brad Lukow, Executive Vice President and Chief Financial Officer stated, "The Company remains committed to investing free cash flow in opportunities that will generate attractive rates of return.  At the same time, the Company expects that it will have cash or debt capacity in excess of its operating, financing and investment requirements.  The Board's decision to increase the dividend and renew the share repurchase program reinforces the Company's commitment to return excess cash to shareholders in order to enhance long-term shareholder value.  It also speaks to the strength of our financial position and our confidence in the future, and is evidence of our disciplined approach to capital management."Fiscal 2012 Outlook (52 Weeks Ending December 29, 2012)The Company expects total sales to increase by between 2.5% and 3.0% in 2012.  This expectation is underpinned by anticipated same-store sales growth of between 0.5% and 1.5% in pharmacy and 2.0% to 2.5% in the front of the store.  In pharmacy, it is expected that prescription count growth will remain strong at approximately 4.0%, however this growth will be largely offset by a continued reduction in average prescription value.  The decline in average prescription value is mostly attributable to further reductions in generic prescription reimbursement rates as a result of recently implemented or announced drug system reform initiatives in a number of provinces.  It is anticipated that increasing generic prescription utilization rates will also serve as a contributing factor to the decline in average prescription value.  Furthermore, funding from transitional fees in certain provinces that was introduced to partially offset the impact of various drug system reform initiatives will be reduced or phased-out in 2012, while the introduction of additional paid services for community pharmacy have, for the most part, been slow to develop.  In the front of the store, it is the Company's expectation that sustained investments in pricing and promotional activities will be required throughout the year in order to generate the anticipated rate of sales growth.In fiscal 2012, the Company plans to allocate approximately $350 million to its capital expenditure program, with approximately 75% of this amount to be invested in the store network.  This should result in an increase in retail selling square footage of approximately 3.5%.  This will be accomplished through the addition of between 40 and 45 new drug stores, approximately 20 of which will be relocations, and through the completion of up to 15 major drug store expansions.  The Company also plans to remodel between 25 and 30 existing drug stores, converting these stores to smaller prototype formats consistent with the brand identification, product offering and consumer proposition offered by the Company's large-format drug stores.2011 Annual ReportThe Company's audited consolidated financial statements and the notes thereto for the year ended December 31, 2011 will be available on or before March 30, 2012.  Management's Discussion and Analysis for the year ended December 31, 2011, including further discussion and analysis of fourth quarter events or items that affected results of operations, financial position and cash flows, will also be available on or before March 30, 2012.  Both documents will be contained in the Company's 2011 Annual Report and will be available in the Investor Relations section of the Company's website at www.shoppersdrugmart.ca, or on the Canadian Securities Administrators' website at www.sedar.com.Other InformationThe Company will hold an analyst call at 3:00 p.m. (Eastern Standard Time) today to discuss its fourth quarter results and its outlook for fiscal 2012.  The call may be accessed by dialing 416-695-7806 from within the Toronto area, or 1-888-789-9572 outside of Toronto.  The seven-digit participant pass code number is 8845571.  The call will also be simulcast on the Company's website for all interested parties.  The webcast can be accessed via the Investor Relations section of the Shoppers Drug Mart website at www.shoppersdrugmart.ca.  The conference call will be archived in the Investor Relations section of the Shoppers Drug Mart website until the Company's next analyst call.  A playback of the call will also be available by telephone until 11:59 p.m. (Eastern Standard Time) on February 23, 2012.  The call playback can be accessed after 5:00 p.m. (Eastern Standard Time) on Thursday, February 9, 2012 by dialing 905-694-9451 from within the Toronto area, or 1-800-408-3053 outside of Toronto.  The seven-digit pass code number is 7754215.About Shoppers Drug Mart CorporationShoppers Drug Mart Corporation is one of the most recognized and trusted names in Canadian retailing.  The Company is the licensor of full-service retail drug stores operating under the name Shoppers Drug Mart (Pharmaprix in Québec).  With almost 1,200 Shoppers Drug Mart and Pharmaprix stores operating in prime locations in each province and two territories, the Company is one of the most convenient retailers in Canada.  The Company also licenses or owns 58 medical clinic pharmacies operating under the name Shoppers Simply Pharmacy (Pharmaprix Simplement Santé in Québec) and eight luxury beauty destinations operating as Murale.  As well, the Company owns and operates 63 Shoppers Home Health Care stores, making it the largest Canadian retailer of home health care products and services.  In addition to its retail store network, the Company owns Shoppers Drug Mart Specialty Health Network Inc., a provider of specialty drug distribution, pharmacy and comprehensive patient support services, and MediSystem Technologies Inc., a provider of pharmaceutical products and services to long-term care facilities in Ontario and Alberta.For more information, visit www.shoppersdrugmart.ca.Forward-looking Information and StatementsThis news release contains forward-looking information and statements which constitute "forward-looking information" under Canadian securities law and which may be material, regarding, among other things, the Company's beliefs, plans, objectives, estimates, intentions and expectations.  Forward-looking information and statements are typically identified by words such as "anticipate", "believe", "expect", "estimate", "forecast", "goal", "intend", "plan", "will", "may", "should", "could" and similar expressions.  Specific forward-looking information in this News Release includes, but is not limited to, statements with respect to the Company's future operating and financial results, its capital expenditure plans, dividend and shareholder distribution policies and the ability to execute on its future operating, investing and financing strategies.The forward-looking information and statements contained herein are based on certain factors and assumptions, certain of which appear proximate to the applicable forward-looking information and statements contained herein.  Inherent in the forward-looking information and statements are known and unknown risks, uncertainties and other factors beyond the Company's ability to control or predict, which give rise to the possibility that the Company's predictions, forecasts, expectations or conclusions will not prove to be accurate, that its assumptions may not be correct and that the Company's plans, objectives and statements will not be achieved.  Actual results or developments may differ materially from those contemplated by the forward-looking information and statements.The material risk factors that could cause actual results to differ materially from the forward-looking information and statements contained herein include, without limitation:  the risk of adverse changes to laws and regulations relating to prescription drugs and their sale, including pharmacy reimbursement programs and the availability of manufacturer allowances, or changes to such laws and regulations that increase compliance costs; the risk that the Company will be unable to implement successful strategies to manage the impact of the drug system reform initiatives implemented or proposed in a number of provinces; the risk of adverse changes in economic and financial conditions in Canada and globally; the risk of increased competition from other retailers; the risk of an inability of the Company to manage growth and maintain its profitability; the risk of exposure to fluctuations in interest rates; the risk of material adverse changes in foreign currency exchange rates; the risk of an inability to attract and retain pharmacists and key employees or effectively manage succession planning; the risk of an inability of the Company's information technology systems to support the requirements of the Company's business; the risk of changes to estimated contributions of the Company in respect of its pension plans or post-employment benefit plans which may adversely impact the Company's financial performance; the risk of changes to the relationships of the Company with third-party service providers; the risk that the Company will not be able to lease or obtain suitable store locations on economically favourable terms; the risk of adverse changes to the Company's results of operations due to seasonal fluctuations; the risk of an inability of the Company to respond to changing consumer preferences that may result in excess inventory, inventory levels that are insufficient to meet demand or inventory obsolescence; risks associated with alternative arrangements for sourcing generic drug products, including intellectual property and product liability risks; the risk that new, or changes to current, federal and provincial laws, rules and regulations, including environmental and privacy laws, rules and regulations, may adversely impact the Company's business and operations; the risk that violations of law, breaches of Company policies or unethical behaviour may adversely impact the Company's financial performance; property and casualty risks; the risk of injuries at the workplace or health issues; the risk that changes in tax law, or changes in the way that tax law is expected to be interpreted, may adversely impact the Company's business and operations; the risk that new, or changes to existing, accounting pronouncements may adversely impact the Company; the risks associated with the performance of the Associate-owned store network; the risk of material adverse effects arising as a result of litigation; the risk of damage to the reputation of brands promoted by the Company, or to the reputation of any supplier or manufacturer of these brands; product quality and product safety risks which could expose the Company to product liability claims and negative publicity; the risk that events or a series of events may cause business interruptions; and the risk of disruptions to the Company's distribution operations or supply chain which could affect the cost, timely delivery and availability of merchandise.This is not an exhaustive list of the factors that may affect any of the Company's forward-looking information and statements.  Investors and others should carefully consider these and other factors and not place undue reliance on the forward-looking information and statements.  Further information regarding these and other factors is included in the Company's public filings with provincial securities regulatory authorities including, without limitation, the sections entitled "Risks and Risk Management" and "Risks Associated with Financial Instruments" in the Company's Management's Discussion and Analysis for the 52 week period ended January 1, 2011, for the 12 week period ended March 26, 2011, for the 12 and 24 week periods ended June 18, 2011 and for the 16 and 40 week periods ended October 8, 2011.  The forward-looking information and statements contained in this news release represent the Company's views only as of the date of this news release.  Forward-looking information and statements contained in this news release about prospective results of operations, financial position or cash flows that are based upon assumptions about future economic conditions and courses of action are presented for the purpose of assisting the Company's shareholders in understanding management's current views regarding those future outcomes and may not be appropriate for other purposes.  While the Company anticipates that subsequent events and developments may cause the Company's views to change, the Company does not undertake to update any forward-looking information and statements, except to the extent required by applicable securities laws.Additional information about the Company, including the Annual Information Form, can be found at www.sedar.com.Financial InformationTo immediately view and download Shoppers Drug Mart Corporation's fourth quarter of 2011 unaudited condensed consolidated financial statements, please access the following link:Q4/11 Unaudited Condensed Consolidated Financial StatementsThis information can also be downloaded at www.sedar.com or by accessing the Investor Relations section of the Company's website at www.shoppersdrugmart.ca.PDF with caption: "Q4/11 Unaudited Condensed Consolidated Financial Statements". PDF available at: http://stream1.newswire.ca/media/2012/02/09/20120209_C2791_DOC_EN_9919.pdfFor further information: Media Contact: Tammy Smitham Director, Communications & Corporate Affairs  (416) 490-2892, or corporateaffairs@shoppersdrugmart.ca (416) 493-1220, ext. 5500 Investor Relations: (416) 493-1220, ext. 5678 investorrelations@shoppersdrugmart.ca