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This is a topic I remember reading a while back that made investors worry about the long term horizon of SC. I'm also looking forward to hearing feedback.
 

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Management said they were not worried about the long term. Canadians won't suddenly become healthier in connection with this news so I am not worried either. This could be a good buying opportunity - a staple that is down 10%.
 

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I wrote about this development back in Sept 09; so the news shouldn't have been that big of an impact to investors unless they didn't really understand the political risk SC was exposed to. I added to my position this morning since the obvious sign to me was over-reaction to a development that was anticipated and something SC was heavily lobbying the government on.

Long-term I believe the company continues to have solid fundamentals.
 

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Shoppers Drug Mart is a solid company with a solid and growing revenue stream and a dominant position in Ontario. The stock is good for a defensive portfolio and would be a great pick if i were bearish on the stock market going forward. That said , i think the consumer staples sector is going to lag other sectors in present bull market conditions. I would only get in if it fell another 5-8% where evaluations would justify the investment.
 

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I think if you got in under $40 like today then it's a good entry position. I'll gladly take 5-8% in a yearly return for a stock such as this. It's only one component of a diversified portfolio and has a very strong management team and well positioned locations.

CC: I wasn't surprised by the analyst views today. I was contacted by a few after I wrote that post in September and when they told me I was being unrealistic in my assessment I asked myself why any of them would have bothered writing me about it in the first place.

The decision today will have a financial impact on the company in some form, but I'm sure they'll increase margins in other aspects of their business and organize their pharmacies to seek alternative revenue sources. Long-term I'm optimistic about the company; but that said wouldn't commit more than 5% of my portfolio to it just like I wouldn't for any other company.
 

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dividend is already modest. I'd worry more about its being cut.

stk risks another whupping when new legislation passes in quebec, so anybody who feels driven to own pharmacy could probably benefit from waiting.

shoppers strong retail division will likely be able to source revenue from a broad base, not just prescr sales.

not bad for a defensive stock, but i'll pass.
 

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Thanks Brad. You seem to have a better handle on SC than many of the analysts who said they are shocked with the Ontario decision. I don't follow SC but I'm intrigued after this price drop.
I also think Brad's take on it is very good. The stock price has not moved despite increased revenue growth (very strong growth at that), reflecting an expectation of this move.

One could argue that there will be a decrease in what people are willing to pay for SC due to the reforms, but I personally don't think so. Much of Shoppers' growth has been from other operations - specifically their aggressive move to sell higher end cosmetics.

I don't think this will affect Shopper's growth in the long-term, and the dividend payout is so low at this point, I doubt there will be a cut.
 

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it's true that retail will help support shoppers through the short term upheaval.

i see a lot of discount laundry soap, dog food, garbage bags & light bulbs on sale in the back aisles of my neighbourhood shoppers. I haven't heard how the new cosmetics boutiques are doing & i had been temporarily believing that no standalone figs have yet been released ...

if you're looking to buy high-end ladies' accoutrements why not a pure play like lululemon.
 

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Discussion Starter #13
dividend is already modest. I'd worry more about its being cut.

stk risks another whupping when new legislation passes in quebec, so anybody who feels driven to own pharmacy could probably benefit from waiting.

shoppers strong retail division will likely be able to source revenue from a broad base, not just prescr sales.

not bad for a defensive stock, but i'll pass.
It's not a screaming buy. The risk is now baked into the price but I don't see any huge margin of safety here. If it falls lower, it might be worth another look...
 

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Do you think the new pharamacy rules will affect SC's ability to increase dividends in the future?
I definitely think so. In the article I discussed that the lack of any dividend increase (at that time) and the most recent one (which wasn't on par with their previous dividend growth history) was directly associated with the anticipation of this development from the Ontario government (and likely others). The cost cutting initiatives the company announced again shouldn't be "new news" to investors if they'd studied the company in detail; they've been focusing on cost controls for over 24 months now.

I think the company will do fine in the long-term but will be volatile as investors suddenly "wake up" to these developments. Why I advocate investors understand as many factors that affect these stocks as they can is precisely for these reasons. It should have come as no surprise in this environment when government revenues are squeezed and cost cutting/new revenues (such as the HST) are unveiled that the piece of the pie that corporations receive would be accessed for government use.
 

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In the neighborhood I live there is a SDM and two small independent drug stores, with small front store space.This gov't edict will be very hard on the independents who do not have anywhere near the volume of OTC sales that the Shoppers does. They will not be able to make up for the lost revenue on generic drug sales through increased OTC sales. Some will go under and SDM will pick up their prescription business.

So going forward Shoppers will land on their feet at the expense of the smaller independents.
 

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I have noticed a trend with Shopper's Drug Mart. In the past they were much more medical device/prescription oriented. For the last few years in the new stores they have dramatically increased the floor space devoted to perfumes and make-up and convenience items. As you go in the store the first person you encounter is the make up counter attendant. You then must walk through all the goodies to get to the prescription desk at the back.

As well for those of you that follow sales they frequently have very good promotions. They leverage their brand with other brands as well. One promotion I remember is them giving a 10$ gift card for subway if you buy $50 worth of stuff.

All in all I like this retailer. They are also very good for gifts. At christmas time they always roll out nice make up kits suitable for women. I even bought a perfume sampler kit there for my MIL this Christmas.
 

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Discussion Starter #20
Shoppers picks a fight that it will not win

You can't blame Jurgen Schreiber for being upset with the Ontario government. But as a shareholder, you should be horrified about the way he's handling it.

Smart people never pick a fight with powerful politicians, and in provincial politics they don't come much more powerful than the minister of health. You can't win that scrap at the best of times and this is far from the best of times.
 
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