Jean Coutu Group profits soar in Q2

LONGUEUIL, Quebec — The Jean Coutu Group reported sales of C$653.8 million in second quarter 2014, compared with C$658.7 million in second quarter 2013.

The 411-store Canadian retail pharmacy franchising company also reported sales for the first half of fiscal year 2014 of C$1.335 billion, compared with C$1.34 billion in the first half of fiscal year 2013. The decrease was due to the deflationary effects of generic drugs. However, the selloff of the company's shares in Rite Aid yielded gains of C$158.3 million during the quarter. Profit for the quarter was C$208.2 million, compared with C$51.2 million in second quarter 2013; the increase was due to the sales of Rite Aid shares, without which profits would be about C$50 million, though earnings per share would still have been 24 Canadian cents, compared with 23 cents in second quarter 2013.

Same-store sales grew by 0.3%, including a 0.3% decrease in pharmacy comps and a 1% increase in front-end comps. OTC drugs saw a 2.5% increase in comps, compared with a 2.2% increase during the same period last year. Generic drugs accounted for 67.2% of prescriptions, compared with 61% during the same period last year, and the introduction of new generics decreased sales growth by 2.2%, while generic drug price reductions decreased growth of those sales by 1.1%.

In a conference call with financial analysts Wednesday morning, Jean Coutu president and CEO François Coutu said that the company would be able to continue its business strategies without having to take on debt, but that opportunities for acquisitions were largely limited to independent pharmacies, after Loblaw's planned acquisition of Shoppers Drug Mart.

"I think in the future, you'll definitely see more opportunities for buying independents," Coutu said, saying that the company was looking forward to expanding in Ontario and neighboring provinces. "We have the will to expand," Coutu said. "It just has to be done in the right way."

During the quarter, the company opened seven new franchised stores, including two relocations and one closing, while two stores were significantly renovated or expanded. Coutu said the company was looking to expand its beauty offerings.

Health and beauty is how Jean Coutu hopes to differentiate itself as Target and Walmart expand in Canada, Coutu said, adding that the company's performance was strongest in the inner cities, while the larger retailers were having a stronger effect in the suburbs. "At the same time, we try to differentiate ourselves especially as far as the pharmacy is concerned because when you want to fill a prescription, you want the convenience," Coutu said. "If [customers] come for their pharmacy needs, they also shop for health and beauty, so I think that's what the strength of Jean Coutu is all about." By contrast, people shopping at Target and Walmart are usually looking for items like clothing and seasonal goods, he said, but Jean Coutu would be "watchful" nonetheless.