The Jean Coutu Group Inc. (TSX: PJC.A), one of the largest pharmacy chains in Canada, released second-quarter earnings results on October 8, and its stock reacted by rallying 2.38% higher. The stock has now returned more than 35% year to date, far outperforming the TSX Composite Index, which has returned just over 7.5%. Let’s take a look at the four most important takeaways from the report and decide if this could be the starting point of a sustained rally higher.
(All results are reported in Canadian dollars.)
1. The results satisfied expectations
Here is a chart of what Jean Coutu achieved in the second quarter of fiscal 2015 versus what analysts had expected and its results in the same quarter a year ago.
| Metric | Reported | Expected | Year Ago |
| Earnings Per Share | $0.28 | $0.28 | $0.24 |
| Revenue | $674.4 million | $664.8 million | $653.8 million |
Source: Financial Times.
2. Same-store sales rose significantly
Jean Coutu experienced significant same-store sales growth during the quarter. Here is a chart depicting this performance.
| Same-Store Sales | Percentage Growth |
| Pharmacy | 2.7% |
| Front-End | 1.6% |
| Total | 2.4% |
Source: The Jean Coutu Group
3. Operating profit increased and the operating margin expanded
Operating profit increased 5.6% to $73.1 million and the operating margin expanded 20 basis points to 10.8% in the second quarter. This growth and expansion is very impressive given the fact that generic drugs, which are much cheaper than brand name drugs, represented 68.1% of sales compared to 67.2% of sales in the year-ago quarter. Two other factors contributing to this growth and expansion were general and operating expenses decreasing 0.5% and depreciation and amortization decreasing 1.3% year over year.
4. Shares repurchases exceeded $50 million
During the second quarter, Jean Coutu repurchased 2,574,100 shares of its class A shares at an average price of $21.62 per share for a total cost of $55.6 million including transaction-related expenses. In its first-quarter report, the company announced its intention to repurchase 8,190,000 of its outstanding class A shares, so this was a great start to the plan.
Should you initiate a long-term position today?
Jean Coutu’s strong second-quarter results sent its stock more than 2.3% higher on the day of the release and I think it could continue to rally, setting new all-time highs in the process. Foolish investors should keep a close eye on this one and consider initiating long-term positions on any weakness provided by the market.
