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Article Excerpt
OPERATOR: Good afternoon, ladies and gentlemen, and welcome to the Shoppers Drug Mart first quarter 2008 results conference call. Please note that this call is being webcast live and will also be archived on the Shoppers Drug Mart website at www.shoppersdrugmart.cs. Please also be advised that this call is being recorded. I would now like to turn the meeting over to Mr. John Caplice, Senior Vice President, treasurer and investor relations and corporate affairs. Please go ahead, sir.
JOHN CAPLICE, SVP, TREASURER & INVESTOR RELATIONS AND CORPORATE AFFAIRS, SHOPPERS DRUG MART CORPORATION: Thank you, operator. Good afternoon, everyone, and thanks for joining us today. My name is John Caplice and on behalf of the Shoppers Drug Mart Corporation I would like to welcome all of you to our first quarter conference call. With me on the call today to answer your questions are Jurgen Schreiber, President and Chief Executive Officer of Shoppers Drug Mart Corporation; George Halatsis, Executive Vice President and Chief Financial Officer; and Brad Lukow, Senior Vice President of finance.
Before we begin I would like to remind everyone that participants in today's discussion may be making certain statements containing forward-looking information with respect to the Company's operating and financial plans and performance. Any such forward-looking statements are based on management's current assumptions, beliefs and expectations. Inherent in any forward-looking statements are known and unknown risks, uncertainties and other factors beyond the Company's ability to control or predict. We want to caution you that actual results or developments may differ materially from those contemplated by any such forward-looking statements. Certain of the material risk factors and material assumptions that could cause actual results or developments to differ from expectations are contained in our first quarter earnings release that was issued earlier today.
Further information regarding these and other material risk factors and material assumptions is included in the Company's public filings with Provincial Securities Regulatory Authorities including. without limitation those described under the heading "Risks and Risk Management" in the Company's MD&A for the year-ended December 29, 2007 and under the heading "Risk Factors" in the Company's annual information form. Any forward-looking information provided in the context of today's discussion represents the Company's views only as of today's date. While the Company anticipates that subsequent events and developments may cause its views to change, the Company does not undertake to update any forward-looking information except to the extent required by applicable securities laws.
Earlier today we issued a news release on our first quarter results, which included our financial statements and MD&A. By now most of you have had an opportunity to review this information, so I'll just make a few brief comments on the quarter before we open up the call to questions from the analysts. Let me start by saying that once again we were pleased with our results. First quarter net earnings increased 18.8% to $101 million, or $0.47 a share compared to $85 million, or $0.39 a share last year. Total sales increased 10.1% in the first quarter to more than $2 billion and were up 6% on a same-store basis, with strong sales growth experienced in all regions of the country. Prescription sales, which accounted for 48% of the sales mix in Q1, increased 8.8% and were up 5% on a same-store basis. In the front of the store first quarter sales increased 11.3% with the Company continuing to experience sales gains in all categories except tobacco, which is being phased out of all remaining stores in western Canada that continue to list these products. On a same-store basis, front store sales increased 7%, or 7.4 % excluding tobacco, with sales growth benefits from an early Easter this year compared to last year.
So without further delay what I'd like to do now is turn it back over to the operator who will open up the call to questions from the analysts. Operator?
OPERATOR: Thank you, Mr. Caplice. (OPERATOR INSTRUCTIONS) Our first question is from Irene Nattel from RBC Capital Markets. Please go ahead.
IRENE NATTEL, ANALYST, RBC CAPITAL MARKETS: Thanks and good afternoon, gentlemen. If I could start, please, with a couple of questions around Easter, would you be able to quantify for us what the benefit to same-store sales and EPS might have been as a result of the Easter shift?
JURGEN SCHREIBER, PRESIDENT & CEO, SHOPPERS DRUG MART CORPORATION: Irene, the sales impact is around 200 basis points.
IRENE NATTEL: Okay, so even adjusting for Easter, you're still seeing very robust demand in front of store. Could you talk a little bit about any specific programs that you may have been running in the period that would account for some of the strengths?
JURGEN SCHREIBER: We had -- we expected a little slow down in economy, I think, and so we took precautions. We had a very strong promotional program and we obviously used our margin wins we had over -- built it up over a period of time and part of these margin wins were reinvested back in sales and sales activities. We stepped up, clearly, our Optimum programs. We had an incredible number of new sign ups. We are now at 8.6 million active Optimum card holders, moving up from 7.7 to 8.2 now to 8.6 and I think we had very, very strong introductions of private label. We still had the major impact of the new launch of Nativa and a few other things that's coming in quarter two, but in quarter one we had very, very strong launches on private label, specifically on food and specifically on seasonal items and that helped us tremendously in the sales.
IRENE NATTEL: That's great. Could you tell us what private label is now with the penetration of front store sales?
JURGEN SCHREIBER: Yes, we had 190 basis point increase so we are now on 15.9%, which is a very strong -- which is coming from 14.1% quarter one last year.
IRENE NATTEL: That's great. And if I might just another question, this on the real estate rollout. Clearly, you had a very, very strong program in Q1. Of those 51 stores could you tell us how many were acquisitions and whether there's any change to your overall target for the year?
JURGEN SCHREIBER: Well, we had -- from the 51 stores, we had 25 that had been new stores and that's compared to 13 in the same period of last year. The major reason for that I think we still stick with our plus 10% square footage increase, but we optimize our real estate program so that we have in quarter one and quarter two a stronger program than we had in previous year. This is just an optimization of the program and a significantly better planning cycle. On the other side we had a very strong -- obviously a very strong acquisition drive. I don't think that it will continue through the year, so it was a specific bucket of stores we could buy. It had no major impact in reality on the square footage increase. The square footage increase truly comes out of new stores.
IRENE NATTEL: Thank you. And just to clarify, Jurgen, when you say that it was a bucket of stores was it a...
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