Shoppers Drug Mart: 'Definitely Recession Resistant'

Shoppers Drug Mart Corp. (SHDMF.PK) said Tuesday stronger sales, notably in prescription drugs, drove profit 6.1% higher in the first quarter.

Earnings rose to C$107-million (C$.49 a share) in the three months ended March 28 at the Toronto-based drugstore chain, compared to C$101-million (C$.46) in the corresponding period last year. Analysts anticipated diluted profit of C$.47.

The stock is "definitely recession resistant," said Robert Cavallo, of Research Capital Corp. in Toronto, who holds a "buy" rating on Shoppers with a C$54 price target. "Look at their sales mix, 50% comes from pharmacy which in theory is resistant."

Overall, first-quarter sales leapt 8.5% to C$2.2-billion, led by an 11.7% rise in drug sales.

If there is a potential source of weakness, it comes within Shoppers' so-called front store sales — products like make-up and perfume. Those discretionary items comprise the other half of Shoppers' sales.

"That's where your going to feel some pressure from what's happening in the general economy," Mr. Cavallo said.

Jurgen Schreiber, Shoppers' chief executive, told investors that while growth remained in the forecast for fiscal 2009, he remained "cautious" in outlook given "the context of these challenging economic times."

Yet so far, Shoppers has managed to skirt the slowdown, with revenue in that segment rising 5.5% in the quarter.

"To date, these guys have battled through it with a great merchandising mix, great strategy and great execution," Mr. Cavallo said.

The analyst pointed toward Shoppers' promotional activity, specifically through the company's card-based Optimum program, which rewards purchases with points that can be used toward still more purchases. Their private-label discount brands have also performed well, he said.

Shoppers opened or acquired 40 additional stores in the quarter while closing one, the company said, growing the nationwide chain to 1,242 retail outlets, which are partly owned and operated by individual pharmacists.

Comments

[naidle:]

Shoppers continues to solidify itself as one of the best, if not the best, run companies in Canada.

Apr 29 08:05 PM