Jean Coutu Q1 earnings down 50%
DIFFICULT INTEGRATION Drug store firm cites integration costs of U.S. chain
Shares of
Jean Coutu Group Inc. plunged as much as 14% yesterday after the company announced first-quarter profit had been cut in half amid a cumbersome integration of the U. S.based Eckerd pharmacy chain.
The Longueuil, Que.-based drugstore retailer said net income in the three months ended Aug. 27 fell to US$ 11.1- million, or US4¢ cents a share, from US$22.3-million, (US9¢) , in the same period a year earlier.
Analysts polled by Thomson Financial were expecting the retailer to earn US17¢ a share.
The company, which acquired 1,500 Eckerd stores for $2.4-billion from J.C. Penney Co. last year, now draws about 85% of its sales from its 1,851 U. S. stores. Coutu has 321 franchised stores in Canada.
Sales climbed to US$2.68-billion from $1.34-billion.
“ I consider our first- quarter results unsatisfactory,” chief executive Francois Coutu told analysts and investors on a conference call yesterday.
Jean Coutu shuttered 78 underperforming Eckerd locations in the first quarter and converted its data warehousing and store replenishment systems.
The information technology systems integration with head office is now complete, said Michel Coutu, head of U.S. operations.
“ We experienced some speed bumps during the system conversion, putting pressure on supply chain, store service levels and promotional product availability,” he said.
“ We are convinced that all of these moves will pay off in the near future.”
Sales of beverages and photo processing hurt front- store sales numbers, he said.
“ Let’s be clear: We are not satisfied with the speed of improvement so far” in the front store, he added.
Pharmacy sales in the U. S. and Canada have slowed due to drug substitutions to generics, which sell for a lower price.
U. S. sales at stores open for more than a year edged up 0.3%, compared with a 2.2% increase the year before.
The company said pharmacy sales gained 1.3% while frontend sales sank 2.3%.
Last week, debt rating agency Standard & Poor’s downgraded Jean Coutu’s debt to a lower level of “junk” status after slowerthansales growth following the Eckerd acquisition.
On Friday, Jean Coutu announced it would sell 30 commercial strip malls, which will generate net proceeds of $ 112million for a gain of $ 26- million, $ 16- million of which will be recorded this fiscal year.
Francois Coutu said the move was “ in line with [ the] stated goal of deleveraging the balance sheet.”
Sales at Canadian stores open for more than a year rose 3.5%, compared with a 6.1% rise in the same period a year earlier, the retailer said.