Bottom line: Neutral on earnings, but an incremental modest positive on investor sentiment as Q1 results in-line forecast for the 4th consecutive quarter.
Results underscore solid, defensive nature of NBLY's business model. NBLY continues to execute effectively on the M&A-driven growth strategy with 95% of Q1 EBITDA growth attributable to M&A, integration complete for the first 10 stores acquired this year (3 in Ontario, 2 in BC, 5 in SK), price paid within historical range of 6-8x. Four pharmacies closed/consolidated for total store count 291.
Financial highlights of Q1:
• Revenue +72% to $197 MM, as forecast
• SSS growth +4.1% vs forecast 2.9%, Rx +5.1%, ahead of expectations with count +0.4%, slightly shy of Shoppers Drug Mart +6.3%/+0.9%, but gap to SC significantly narrowed.
• EBITDA +77% to $19.9 MM (RBC CM $19.6 MM), margin 10.1% vs forecast 10.0%.
• Leverage pro forma recent acquisitions unchanged at 3.5x. Details on following page.
Outlook: Slide deck reiterates five strategic priorities for 2024: 1) Talent and Culture, with 16 graduating pharmacists to join NBLY in August, one store to pharmacy partner model and 5 to follow, 2) Acquisitions, noting multiple transactions in due diligence phase and focus on transactions with higher EBITDA per location, 3) Patient experience, rolled out Digital Pharmacy tools in 10 more pharmacies, adding another 30 in Q2, minor ailment rollout positively impacting trends, 4) Operational excellence, 5) Growing the core.
Conference call 8:30 am: 416-764-8650 or 888-664-6383 ID: 59369825
Expect focus of call to be: i) current operating trends, including pharmacist availability/cost; ii) cadence of M&A and ability to fund given current leverage, iii) updated thoughts on potential gains from operating efficiency, iv) driver of step-up in SSS and sustainability.