Chemist Warehouse earnings flying as clock ticks down on Sigma Healthcare merger

The retailer has reported rampaging sales figures, just a day before Sigma Healthcare shareholders are due to vote on a multi-billion dollar merger with the pharmacy retailer.

Vikesh Ramsunder, managing director of Sigma Healthcare and Chemist Warehouse co-founder Mario Verrocchi.

Chemist Warehouse has delivered a record first half trading result with like for like sales up more than 10 per cent, just a day before Sigma Healthcare shareholders will vote on the plan to merge the two companies.

The announcement drove Sigma shares 7.8 per cent higher in early trade on Tuesday to $2.91.

Sigma shareholders are sitting on outsized gains since the proposed merger was announced on December 6, 2023, with the stock changing hands at just 76.5c at that time.

Shareholders will vote on the scheme at 6pm on Wednesday, January 29, with the combined entity’s shares to start trading on the ASX on February 13 subject to a supportive vote and necessary court approval.

Chemist Warehouse said on Tuesday, in a statement lodged with the ASX by Sigma, that its total retail network sales for the first half came in at $5.15bn, up 13 per cent, while on a like for like basis, excluding new store openings, sales growth was 10.3 per cent.

The company opened 36 new stores during the half, and now has 658 in total, with the vast majority in Australia.

Chemist Warehouse’s earnings before interest and tax came in at $437.9m for the half, up 35 per cent, while the company’s earnings margin expanded from 18.3 per cent to 22.3 per cent.

Chemist Warehouse chief executive Mario Verrocchi says the figures were aided by a strong performance in December.

Sigma Healthcare boss Vikesh Ramsunder. Picture: Luis Ascui

“We have executed well on the commitments we made in September to deliver sustained growth through new franchise store openings and international expansion, while implementing new supply agreements to drive efficiencies.

“We also successfully launched the new Messi men’s fragrance, which delivered strong sales during the period, demonstrating our ability to innovate and support partners’ brands.

“We enter 2025 with confidence and look forward to further growth and network expansion.”

The merger of the two companies is expected to generate about $60m in annual synergies, with Sigma managing director Vikesh Ramsunder to continue as managing director, while Mr Verrocchi will continue to run the Chemist Warehouse business.

The merged group will own four franchise brands, including Chemist Warehouse, as well as being a pharmaceutical wholesaler and distributor.

It will oversee a combined network of more than 800 franchise network stores in Australia, and supply products to more than 3500 pharmacy customers.

The merged entity will be worth more than $30bn with Sigma to issue Chemist Warehouse Group with $700m in cash and about 9.9 billion new shares, with Chemist warehouse shareholders to own about 85.7 per cent of the company post-merger.

Citi analysts said in a note to clients on Tuesday that the trading update was “very positive” while the strong earnings margin increase was a “big surprise”.

“The margin increase was driven by new supply arrangements, including wholesale supply through Sigma,” Citi analysts said.

“While we do not yet incorporate Chemist Warehouse into our Sigma forecasts, the result suggests that the combined group is tracking well ahead of our expectations for about $800m of combined pro-forma EBIT in the first full year post-merger.”

Originally published as Chemist Warehouse earnings flying as clock ticks down on Sigma Healthcare merger