Dis-Chem will start mass vaccinations of the public from today in a move that will draw more customers into its stores, potentially boosting sales of other merchandise.
The discount pharmacy and healthcare group has reinstated its dividend after reporting a solid rise in earnings, despite its 2021 financial year coinciding with the outbreak of the Covid-19 pandemic, which brought mixed fortunes for the group.
Although it was an essential service provider and allowed to trade throughout the year, Dis-Chem said the various regulations imposed during the different levels of lockdown restricted its operating hours and also what it was and was not allowed to sell.
“Level 5 lockdown resulted in 20% of their product not being allowed to be sold. This included beauty, which is a higher margin product than their core business,” said Imtiaz Suliman, director and portfolio manager at Sentio Capital.
“A stand-out was online that grew sales by 260.7%, albeit off a low base. This trend is set to continue as consumers get comfortable with the security and convenience of online shopping.”
As a result of physical distancing, increased handwashing, people working from home and children not going to school, fewer South Africans caught colds or flu last year than in previous years. This affected sales of over-the-counter medication.
Dis-Chem said various restrictions during each level of lockdown dramatically changed the shopping behaviour of its customers. Online growth was supported by the addition of 39 hubs and continued investment in its e-commerce platform to meet the increased demand.
On a net basis, Covid-19 had a negative impact on 2021 earnings growth, said Sarah le Roux, equity analyst at Kagiso Asset Management, taking into account the lost cold and flu medication sales, reduced trading hours, and being unable to sell some product range during lockdown Level 5.
“A large proportion of their store portfolio is mall-based, leading to a loss of sales to independent pharmacies as consumers chose to shop in convenient locations closer to home,” Le Roux said.
Costs directly related to Covid-19 amounted to R56.6-million, mainly relating to providing personal protection equipment, screening costs, staff Covid-19 testing and vouchers worth R23.5-million that it distributed to all staff as a gratuity for their commitment to the frontline fight against the virus.
“While most of these trends are expected to reverse to some extent in 2022, changes in consumer behaviour are expected to prevent certain categories from reaching pre-Covid levels in the near term and certain Covid-19 related costs will continue to be incurred,” said Le Roux.
Retail revenue grew by 7.6% to R23.4-billion, with comparable-store revenue up 2.7%. It added a net 22 new stores to its network, including three Mediclinic stores and acquired two new pharmacies during the year ending February with 194 stores. Baby City, which it acquired on 1 January, contributed R128-million to revenue in January and February.
Wholesale revenue improved by 16.4% to R19.3-billion, mostly back to its retail outlets, while external revenue to independent pharmacies and The Local Choice franchisees grew by 27.7% and 37.1% respectively.
For the group as a whole, revenue for the year to 28 February increased by 9.6% to R26.3-billion. Total income grew by 8.5% to R7.4-billion. Earnings and headline earnings per share rose 11.8% to 77.8c. After holding back on a final dividend last year and an interim dividend due to Covid-19, it raised its total dividend for the year by 148% to 31.1c per share.
Since many retailers decided to hold back on dividends during 2020’s lockdown, Suliman said the resumption of Dis-Chem’s dividend was a sign that it was comfortable with the activity levels in the economy.
“Dis-Chem has a lot of their stores in malls whereby footfall was affected significantly as consumers avoided indoor spaces,” Suliman said.
“Mall footfall has picked up since. The risk is if we have a significant third wave.”
For the past week, Dis-Chem has been vaccinating over 60s and healthcare workers, and will expand its Covid-19 vaccination programme from today. Operating at full capacity, it said it would be able to administer up to 800,000 vaccines a month. The Department of Health has set a R70 fee, which all providers will charge to recover costs related to vaccine administration.
“The administration of the Covid vaccine is a major boost to getting feet into the stores,” said Suliman.
“Usually, the one getting vaccinated picks up items from the front shop as they have already made the trip to venture out.”
Suliman said dispensing the vaccine had the potential to attract new customers, including those who previously had limited interaction with the brand.
“At this point it is difficult to quantify the benefit that the vaccine roll-out itself may have on earnings, however the resulting increase in footfall does present an opportunity to increase in-store sales,” said Le Roux. DM/BM
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