Shoppers Drug Mart Corp.'s hunt for a new chief executive officer is raising questions about its future direction, just months after the company reassured investors that its new three-year strategic plan would revive earnings growth.
The successful execution of that still-nascent strategy, however, is just one of a series of challenges that will face Jurgen Schreiber's permanent successor once he or she is named.
Mr. Schreiber, who will leave Shoppers on Feb. 15, is widely credited with improving the pharmacy chain's market share of higher-margin products like cosmetics and private-label goods. His decision to put more emphasis on food coaxed customers into the store, where they spend more on other purchases.
But the Ontario government's move last year to crack down on generic drug prices turned out to be a major hit for one of the country's top retailers. Further drug pricing reforms this spring are set to put more pressure on its pharmacy business.
Shoppers has proposed a number of initiatives to offset the effect of those changes on the bottom line, such as offering financial services. While details are scarce about the retailer's plans for financial services, its new private-label generic drug initiative is aimed at generating higher margins and more savings since prepackaged medications liberate its pharmacists and technicians from the time-consuming task of counting and bundling pills. But investors are worried those projects could lose momentum following Mr. Schreiber's departure or be scrapped entirely once a new CEO is named.
Those uncertainties weighed heavily on the company's shares Thursday, prompting at least two analyst downgrades. Shoppers' shares lost 5.1 per cent, or $1.99, to close at $37.19 on the Toronto Stock Exchange.
Investors were surprised by Mr. Schreiber's resignation, which was announced late Wednesday. The company said he is leaving to pursue a private-equity position outside North America and will be temporarily replaced by chairman David Williams.
"There is never a good time for a sudden CEO departure, but [Shoppers] is at the early stages of implementing a detailed three-year plan to restore EPS [earnings-per-share] growth," RBC Dominion Securities Inc. analyst Irene Nattal wrote in a research note. She cut her rating on the stock and lowered her price target to $42 from $47.
"At a time like this, leadership is critical, and having a knowledgeable, informed CEO is imperative."
Candice Williams, an analyst with Canaccord Genuity, said Mr. Schreiber's departure, while inopportune, is probably better for the company in the long run, given his "stressed" relationship with the Ontario government, with which he fought over the generic drug reforms.
Those reforms banned an estimated $750-million a year in so-called professional allowances that pharmacies collected from generic drug firms to stock their goods. Shoppers has already seen its earnings hurt by the reforms.
The question now is how Shoppers plans to follow through on its plan.
"There are bunch of new initiatives that are in fledgling stages that need strong leadership," Ms. Williams said. "When the new CEO comes, is he going to want to take that direction?"
Wendy Evans, a retail consultant and president of Evans and Co. Consultants Inc., said Shoppers will also face increased competition from other pharmacies, as well as grocers and discount giants such as Wal-Mart and Costco.
Others, meanwhile, have already begun speculating about possible successors. Keith Howlett of Desjardins Securities said he thinks that John Lederer, former president of Loblaw, "may be a leading candidate."
Mr. Lederer, however, began a new job as president and CEO of U.S. Foodservice less than six months ago.
Bob Gibson, an analyst at Octagon Capital Corp., is hoping Shoppers settles on promoting an internal candidate: "If it is an internal person, then there's not that huge learning curve."
Rita Trichur