Chemist Warehouse A Winner For Sigma Healthcare

Australia | 1:31 PM

Sigma Healthcare's FY26 result underscored the value of last year's merger with the Chemist Warehouse pharmacy chain.

• Sigma Healthcare’s FY26 largely in line with consensus
• Slowing sales and cost growth a concern, albeit FY27 has started well
• Local and international store rollout continues
• Chemist Warehouse founders looking to sell some equity

By Greg Peel

As a full-line wholesaler and distributor, Sigma Healthcare ((SIG)) supplies and delivers prescription products including Pharmaceutical Benefit Scheme (PBS) medicines and over-the-counter and front-of-store products to over 3,500 pharmacy customers. Sigma’s Australian wholesale and distribution operations are supported by its national distribution centre network.

Sigma’s retail pharmacy chains include Amcal and Discount Drug Store (DDS) but most importantly, Chemist Warehouse, with which Sigma merged in February last year.

Chemist Warehouse is the dominant market participant in community pharmacy in Australia, Bell Potter notes, and its operating leverage is becoming more obvious by the day.

Slight Miss

Sigma’s FY26 earnings were largely in line with consensus, although revenues were within 1% of forecast which translated to a -2.2% miss on earnings (EBITDA), offset by lower finance charges. Normalised earnings per share increased 22%.

Revenues increased 15.5% versus the proforma FY25 result (which reflected the CW merger) driven by the Australian pharmacy network, where like-for-like network sales increased 13.4%, in addition to strong demand for GLP1 medicines, particularly for weight loss.

International sales grew 12.2%.

Sigma delivered $32.6m in merger synergies, slightly ahead of consensus, and is on track to deliver targeted $100m in cost savings by FY29.

The GLP1 thematic is likely to be sustained for years to come, Bell Potter suggests, with the tailwind of increased basket size (for proteins supplements in particular) also being sustained. The company’s own branded health supplements were a noted beneficiary in 2026.

While Chemist Warehouse sales were up 13.4% in FY26, sales slowed to 11.8% growth in the second half from 15.0% in the first, which did not go down well with investors.

Analysts point out the slight moderation in the second half in Australia was driven by a later start to the cold and flu season as well as sales cycling very strong second half growth in FY25.

Looking Ahead

Despite that second half slowdown, FY27 has started well, returning to double-digit like-for-like sales growth for Chemist Warehouse branded stores. Management expects this to hold for the balance of the first half FY27.

Morgans sees this as achievable supported by ongoing GLP-1 tailwinds (potential PBS inclusion and oral version approval).

The significant slow-down spooked the market, Citi notes. A mild cold and flu season impacted over-the-counter medicine and one would assume this normalises next year.

However, industry feedback also suggested that sales of vitamins were weak in the fourth quarter, partly due to a weaker consumer and this was confirmed.

Other discretionary parts of the front-of-store such as women’s fragrance have also been impacted with trade-down.

This clearly impacts the market’s rating of Sigma, Citi suggests, to the extent that sales are not bulletproof from the macro cycle.

The key negative surprise in the result for Macquarie involved cost headwinds in the key Australian network, with gross profit margins declining -20 basis points year on year, and total operating expenses growing at 9% year on year, although the trajectory did improve in the second half.

On the former, significant growth in GLP-1 sales has led to a mix-shift into a lower-margin category, Macquarie notes, but consistent with significant growth being seen in the top-line.

On the latter, Macquarie particularly noted the elevated annual growth rate in General & Administrative costs. Management called out several one-offs as being a driver of this, particularly project and integration costs.

Although the result has lifted uncertainty on the cost outlook, management is upbeat on seeing growth rates slow, with FY27 a key year of delivery following a full year post the Chemist Warehouse transaction.

Store Growth

Chemist Warehouse added 24 new Australian stores in FY26 and is targeting 900 long-term (60% upside). Another 20 new international stores were added.

The international business has grown considerably, Morgans notes, with revenue up 33.0% and earnings almost doubling. The Ireland business is growing strongly with sales up 45%, now with 18 stores, and has turned profitable.

New Zealand sales grew 20%.

Sigma plans to enter the UK in FY27 with two stores expected before December, and three in the second half. This will be through a capital-light joint venture with local group Green Light Pharmacy.

The international store count was only up by a net one in the second half, Citi notes, impacted by six closures in China. However, a further 19 are expected to open in first half, including the UK entry.

Citi has high confidence the New Zealand business should be able to roughly double its store count from here, with channel checks continuing to indicate it is taking significant share from local incumbent pharmacies.

It is important to also acknowledge that International is only a small contributor to earnings (5% of FY26 Group) and will remain so for some time.

In Australia, growth plans include 13 new Chemist Warehouse stores and an 82-store Amcal/DDS in FY27.

Founder Risk

All the company founder stock comes out of escrow now the FY26 results have been released. Morgans understands the shares were open for trade after the market close on Friday 28th August.

Founders have indicated they may sell up to 544,000 shares (4.7% of the issued capital) out of 5.3m shares owned.

The shares have been soft into a possible sell-down, and aside from the second half Chemist Warehouse sales slowdown spooking the market, the -8% share price fall on the day of the result release was likely a reflection of this risk.

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