Tuesday, January 27th-0.9°C

Jean Coutu to expand in smaller markets amid poor acquisition opportunities

MONTREAL - Jean Coutu plans to expand its presence outside large urban centres as the pharmacy chain looks for growth amid increased competition and the absence of large acquisition opportunities.

The Quebec-based retailer wants to continue adding smaller-sized stores in smaller communities which tend to have older customers who buy more prescription drugs than younger consumers.

"In the last year or two when we opened in smaller markets we realized that the prescription volume goes up quickly so that's why we want to be more involved and more active," Francois Coutu said Thursday in a conference call to discuss third-quarter results.

Jean Coutu (TSX:PJC.A) said Thursday it earned $62.5 million or 30 cents per share in the quarter ended Nov. 30, 2013, even though revenues fell to $712.5 million on the sale of more lower-cost generic drugs and the absence of flu that reduced sales.

The results compared with a profit of $56.2 million or 26 cents per share on sales of $716.6 million in the same period a year earlier.

Analysts on average had expected a profit of 28 cents per share.

The chain did not say Thursday how many small stores it plans to add.

Jean Coutu's franchisees operate 413 stores including 331 regular stores of 11,000 square feet, 26 of 5,000 square feet and 56 counters in hospitals and other areas.

There's been speculation about Jean Coutu's next move in response to the pending $12.4-billion takeover of Shoppers Drug Mart (TSX:SC) — Canada's largest pharmacy chain — by Loblaw (TSX:L).

The company said the best way of preserving its leading position in Quebec and offset competition is to maintain the loyalty of customers who buy prescription drugs.

"When you have a customer loyal at the prescription level you have something extremely strong and powerful for the long-term business and that's why we want to keep up this being the backbone of our business," Coutu told analysts.

Coutu also said he's confident of winning back the non-prescription drug business of customers who have been lured to Target and other rivals, in part by expanding its offering of electronics and private label brands.

Expanding in smaller markets would allow Jean Coutu to avoid big-boss competitors like Target which is focused on large urban centres.

Jean Coutu also said Thursday it has secured undisclosed cost concessions from suppliers to its Pro Doc generic drug subsidiary in advance of possible further price reductions by governments. The move should allow Pro Doc to maintain margins of 40 to 45 per cent.

Jean Coutu continued to expand the sale of generic drugs which represented 66.7 per cent of all prescriptions in the quarter, up from 61.8 per cent a year ago. Pro Doc earned $21.6 million on $47.9 million of sales during the quarter, up from $16.1 million on $41.4 million of revenues a year earlier.

The lower prices however hurt same-store drug sales revenues which fell by 1.6 per cent despite a 4.5 per cent increase in the number of prescriptions. Front-end sales for stores open at least a year decreased by 1.3 per cent.

Analyst Derek Dley of Canaccord Genuity said Jean Coutu's small-town expansion efforts is a natural move for a mature company that faces few available acquisition opportunities.

"The urban markets are becoming more saturated so they're looking for growth...in smaller markets with smaller stores is something we're going to see a lot of companies doing," he said in an interview.

In the absence of a large acquisition, he expects Jean Coutu to use its mounting cash to further boost its dividend.

The company recently repurchased 22 million of its shares and paid a one-time cash dividend of 50 cents per share. The shares purchased represented 20.5 per cent of its outstanding shares and included 18.15 million controlled by the Marcelle and Jean Coutu Foundation, a trust controlled by the company founder and his family.

The move will generate a $53.6-million tax savings for the company after the founder and controlling shareholder gave the $199 million tax benefit to the company, added chief financial officer Andre Belzile.

On the Toronto Stock Exchange, Jean Coutu's shares gained one cent at $18.64 in Thursday afternoon trading.

The Canadian Press

Read more Business News


Recent Trending

Today's Market
S&P TSX14833.88+36.05
S&P CDNX676.77+2.38
S&P 5002029.55-27.54
CDN Dollar0.8044-0.0026
Natural Gas2.916-0.065

Okanagan Companies
Pacific Safety0.12-0.02
QHR Technologies Inc1.43+0.04
Anavex Life Sciences0.180.00
Metalex Ventures0.035-0.005
Russel Metals24.33-0.12
Copper Mountain Mining1.05-0.04
Colorado Resources0.155+0.02
ReliaBrand Inc0.0069+0.0009
Sunrise Resources Ltd0.055+0.03
Mission Ready Services0.21-0.03



216367814991 East Hill Rd
10089681 bedrooms
more details
Click here to feature your property
Please wait... loading

How to price: workbook approach

In 2008 Self Counsel Press published my book - Pricing Strategies for Small Business. The book is now available in Europe, India, Russia and the United States. The purpose of the book was to make avai...

Ailing Parents: Tax Issues

If your parent has become ill, there can be several tax issues that come into play depending on the nature of their illness, their age and the role that family members are playing. For example, if you...

What do I pay ICBC for anyway?

If you have had ongoing dealings with ICBC as a result of a car accident than you have likely had the pleasure of dealing with at least two sides of ICBC. Initially the relationship starts off pleasan...


Member of BC Press Council