Chemist Warehouse has provided a trading update for the 1H25 results last week subsequent to shareholder approval of the merger with Sigma Healthcare. The 1H25 results are very strong with profit margins up 138bp (on network sales) in 1H25. What’s driving results? While not disclosed, we estimate more than half comes from higher gross margins with a benefit from the new Sigma supply agreement. We expect FY25e EBIT margins to be up 101bp. We now set our long-term EBIT margin for Chemist Warehouse at 8.2% of network sales compared with 7.4% previously. 

The proposed merger between Chemist Warehouse and Sigma will create a business with close to $760 million of combined annual EBIT with growth of 12%-19% over the next four years. However, the first hurdle is ACCC approval which may be a drawn-out process. While there is an impressive growth profile, the prospects for rollout beyond Australia and New Zealand is still in its infancy. The upside case would see continued elevated like-for-like sales growth and a seamless integration of the Chemist Warehouse contract.