BUSINESS

Pharmacy chain Jean Coutu getting ready for Target by stocking shelves

10/10/2012 12:25 EDT | Updated 12/10/2012 05:12 EST
MONTREAL - The Jean Coutu Group is preparing for next year's arrival in Quebec of American retail giant Target by focusing on stocking the pharmacy chain's shelves with products at competitive prices.

"As we are getting prepared for additional competition — we are doing maybe a little bit more sophisticated approach to replenishment of our stores," CEO Francois Coutu said Wednesday during a conference call the discuss the pharmacy chain franchisor's second-quarter results.

He said the idea is to make sure that all stores "have the (right) product in time and at the right price."

Coutu didn't mention the U.S. retailer by name, but Target is the main new competitor arriving in its market that will offer pharmacy services.

It plans to open at least 12 stores in Quebec in the fall of 2013 and up to 135 across Canada. Target will have pharmacies in its Canadian stores operated by independent pharmacists under a franchise model when it opens its doors in former Zellers locations.

Walmart is also adding 73 stores across Canada by January, including 28 former Zellers stores. The new stores will add 4.6 million square feet of retail space, including pharmacies. The initial 30 stores to be opened by the end of October include eight in Quebec and one in New Brunswick.

Coutu said improving stores to answer customers' needs shows it's not just looking at expansion of its existing chain.

"After 40 something years of operation we are still bettering our positioning as far as replenishment in our stores. That's something I'm committed to do in the next months or so, making sure we're better prepared to face competition."

Jean Coutu net profit in the three months ended Sept. 1 was $51.2 million or 23 cents per share. That compared with 66.4 million or 20 cents per share in the comparable year-earlier period.

Excluding $22 million in proceeds from the sale of its investment in U.S. retailer Rite-Aid, profits last year were $44.6 million or 19 cents per share.

Revenue for its fiscal 2013 second quarter rose to $658.7 million from $635.2 million in the same fiscal 2012 period.

Coutu said the $5.4-million increase in profitability was mainly attributable to the solid operational performance of its generic drug manufacturer, Pro Doc, and franchising activities.

Pro Doc earned $15.4 million on $38.3 million of sales, compared with $12.3 million on $33.6 million of sales a year earlier.

About 61 per cent of prescription drugs sold in Jean Coutu stores were generics in the quarter, up from 57.2 per cent a year earlier. The subsidiary added five new molecules in the past six months, including its version of the blockbuster cholesterol medicine Crestor in June.

On a same-store basis, the PJC network's retail sales grew by 2.6 per cent, pharmacy sales gained three per cent and front-end sales increased by 1.6 per cent compared with the same period last year.

Sales of non-prescription drugs, which represented 8.4 per cent of total retail sales, increased by 3.9 per cent, up from 2.9 per cent for the same period of fiscal year 2012.

Meanwhile, Francois Coutu said the company would welcome it if the Quebec government followed Ontario's lead and allowed pharmacists to give flu shots to patients and compensated them for the service.

However, he hopes the new Parti Quebecois minority government doesn't mirror Ontario in reducing professional allowances from 15 per cent to the 10 per cent next April.

Coutu said reduced generic drug prices and professional allowances have squeezed pharmacists profits over the last two years. Any further cuts will have a serious impact on revenues, he said.

"I'm not looking forward to seeing something like this in Ontario next April," he said. "There will have to be compensation, different than just an increase in professional fees (by) $1."

Jean Coutu Group operates a network of 402 franchised stores in Quebec, New Brunswick and Ontario under the banners of PJC Jean Coutu, PJC Clinique, PJC Sante and PJC Sante Beaute, and employs close to 19,000 people. It also owns Pro Doc Ltd., a Quebec-based subsidiary and manufacturer of generic drugs and has an investment in Rite Aid Corp., a company with more than 4,600 drugstores in the United States.

On the Toronto Stock Exchange, Jean Coutu's shares were unchanged at $14.53 in midday trading Wednesday.