Sigma Healthcare Delivers 18.7% EBIT Growth in First Merged Period With Chemist

Sigma Healthcare (ASX: SIG) delivers strong H1 FY26 results with normalised EBIT up 18.7%

Sigma Healthcare has reported strong H1 FY26 results for the half-year ended 31 December 2025, marking the first full reporting period capturing the merged Sigma-Chemist Warehouse entity operating together. Revenue reached $5.5 billion (up 14.9% on 1H25 Pro-forma), whilst normalised EBIT climbed 18.7% to $582.9 million, demonstrating the complementary nature of the combined businesses. Normalised net profit after tax (NPAT) rose 19.2% to $392.0 million, with normalised earnings per share (EPS) up 19.4% to 3.4 cents per share. The company declared an interim dividend of 2.0 cents per share (approximately 60% payout ratio), payable on 20 March 2026.

These results validate the merger thesis by showing revenue growth exceeded expense growth, with operating leverage translating into stronger earnings growth than top-line expansion. The EBIT margin expanded 34 basis points to 10.6%, whilst warehouse and distribution costs remained flat despite a 5.1% increase in volume throughput.

What is operating leverage and why does it matter for Sigma?

Operating leverage refers to the ability of a company with high fixed costs to grow earnings faster than revenue once it achieves sufficient scale. For Sigma Healthcare (ASX: SIG), the distribution network and warehouse infrastructure represent fixed costs that do not increase proportionally with sales volume. When sales grow, these fixed costs are spread across a larger revenue base, allowing more of each additional dollar to flow through to profit.

The H1 FY26 results demonstrate this effect clearly. Whilst revenue grew 14.9%, normalised EBIT increased 18.7%, showing that earnings expanded faster than sales. Warehouse and distribution costs rose only 0.3% despite distribution centre volumes growing 5.1%, illustrating how the merged group’s scale enables incremental sales to convert to profit at a higher rate. The EBIT margin expanded from 10.2% to 10.6%, representing 34 basis points of improvement.

This operating leverage is the core financial mechanism driving Sigma’s investment case. As the company continues to add stores, expand internationally, and consolidate supply chains, the fixed cost base remains relatively stable whilst revenues climb, driving margin expansion and accelerating earnings growth.

Four strategic pillars driving Sigma’s growth engine

Domestic retail network expansion

Sigma’s Australian Chemist Warehouse branded store network expanded to 550 stores (13 added in 1H26), with franchisee sales reaching $5.1 billion (up 17.2%). Like-for-like sales growth of 15.0% demonstrated strong performance from the existing store base, whilst 18 stores were refurbished by franchisees during the period.

The company continues executing its reinvigoration strategy for the Amcal and Discount Drug Stores (DDS) brands following the conversion of all My Chemist stores. Long-term franchise network targets remain ambitious:

• Approximately 900 Chemist Warehouse stores
• Approximately 300 Amcal stores
• Approximately 150 DDS stores

International expansion accelerating

Sigma’s international footprint reached 97 stores (12 added in 1H26), with sales climbing 24.5% to $0.8 billion. Like-for-like international sales growth of 11.1% reflected strong momentum across all core markets. Ireland delivered particularly robust growth of 49.6%, whilst New Zealand sales increased 22.4%.

The company plans to open 11 international stores in 2H26 and is assessing supply chain requirements in New Zealand to support continued expansion. In China, Sigma is refining its strategy with a shift towards profitable online sales, with the store network closure programme expected to complete by FY29.

Owned and exclusive label products

Sales of owned and exclusive label products increased 15.7%, now approaching 10% of Chemist Warehouse branded store sales. The portfolio has expanded to over 3,000 products, with more than 400 new product lines added during 1H26. Wagner generics now represent 39% of Sigma’s recommended generic range, providing both product differentiation and enhanced margins.

Company Strategy

“Chemist Warehouse is and will remain a house of brands.”

This product differentiation strategy supports both customer value proposition and profitability, with owned brands typically delivering higher margins than third-party products whilst maintaining the discount positioning that drives customer loyalty.

Operating leverage and synergy delivery

Sigma achieved $13 million in synergies during 1H26, remaining on track to deliver $100 million per annum by FY29. The company combined support centres into the Preston office and consolidated supply chain operations, with distribution centre volumes growing 5.1% whilst warehouse and logistics costs remained flat (up 0.3%).

Two distribution centre closures are planned for FY27 (South Guildford and Port Adelaide) as part of the network optimisation programme. The company is leveraging wholesale automation, rationalising technology systems, and consolidating supplier relationships to drive operational efficiencies across the merged entity.

Balance sheet strength supports self-funded growth

Sigma Healthcare (ASX: SIG) reported a conservative financial position with net debt to normalised EBITDA of 0.6 times (down from 0.85 times at FY25). Net debt decreased 15.6% to $635.1 million, demonstrating the company’s strong cash generation and deleveraging trajectory. Operating cash flow of $317.4 million and free cash flow of $284.6 million provide substantial capacity to fund organic growth internally without requiring external capital.

Key balance sheet metrics include:

• Net Debt to Normalised EBITDA: 0.6x (down from 0.85x at FY25)
• Net debt: $635.1m (down 15.6% from $752.1m)
• Operating cash flow: $317.4m
• Free cash flow: $284.6m
• Capex: $13.7m (supporting international openings, distribution centre infrastructure, IT investment)

Debt facilities were reduced from $1.5 billion to $1.4 billion whilst maintaining sufficient headroom for operational flexibility. The sub-1x leverage provides significant balance sheet capacity to pursue growth opportunities, with the business generating substantial free cash flow to fund international expansion, network growth, and infrastructure investment without dilution.

Trading momentum continues into 2H26

Sigma Healthcare’s trading update for the first seven weeks of 2H26 demonstrated continued momentum, with Chemist Warehouse branded store sales up 16.6% and like-for-like sales up 14.4%. The company noted it is beginning to cycle GLP-1 medication sales from the prior period, which will impact future growth comparisons.

The 2H26 pipeline includes 9 Chemist Warehouse pharmacies and 15 Amcal franchisees in Australia, alongside 11 international stores. Management confirmed the $100 million per annum synergy target remains on track for full achievement by FY29, with integration programmes progressing as planned.

The strong trading update provides confidence in full-year delivery, whilst the GLP-1 cycling commentary offers important context for understanding future comparable growth rates as the business laps the initial surge in weight-loss medication demand that benefited 1H25.

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