Murphy leaving a retail powerhouse

Chain Drug Review, Feb 5, 2007

TORONTO -- Financial analysts' reaction to the change of leadership at Shoppers Drug Mart (SDM) has been largely positive.

Those who have commented publicly have expressed their approval of the selection of Jurgen Schreiber to succeed Glenn Murphy as chief executive officer at the end of March.

They say the new leader has deep, retail chain management experience with sophisticated employers and note the seemingly good acceptance of Schreiber by SDM's management when he was introduced as heir apparent.

The market, no doubt reacting instinctively to a change whose timing was unexpected, closed down 43 cents to $56.66 (Canadian) at the end of the trading day on which the announcement was made.

Whatever the short-term gyrations of the market, Murphy will leave behind him a record of solid achievement.

During his tenure he took the drug chain public, increased earnings per share from 12 cents in 2001 to $1.72 in 2005, saw return on equity reach 16% last year and initiated a dividend-paying policy (now paying 40 cents per share).

SDM's price/earnings ratio has been around 26 recently, well ahead of most Canadian retail stocks.

In the first three quarters of the current fiscal year systemwide sales grew 6.5%, with pharmacy showing a 7.8% increase and the front end a 5.3% gain.

Annual square footage growth has recently averaged around 10% and the ongoing expansion of the chain has made it Canada's largest drug chain the sixth-largest chain in North America.

SDM's sales, which are approaching $8 billion (Canadian) a year, make it rank it fifth among North American chains.

Much of Murphy's success is attributable to his leveraging of SDM's leadership position in pharmacy, introducing a powerful new store model and adding innovative products and services, particularly the strengthening of the company's cosmetics offerings and the expansion of its convenience and seasonal departments.

Murphy also made creative use of the SDM's powerful Optima loyalty program in the company's marketing and, perhaps most of important of all, won and retained the loyalty of the associates.

As one commentator has observed, "Shoppers was a good company when Murphy arrived; he leaves it a great company."