TORONTO (Reuters) - Shoppers Drug Mart Corp SC.TO, Canada’s leading pharmacy chain, reported a solid fourth-quarter sales increase on Thursday and profit that slightly exceeded expectations, sending its shares higher.
Sales at established stores, an important measure for retailers, rose 2.7 percent in the fourth quarter ended December 29. Pharmacy sales rose 3.7 percent to C$1.22 billion as the chain filled more prescriptions, though pharmacy margins fell and overall profit was little changed from the year-earlier quarter.
Margins on prescription drugs took a hit from a regulatory drive across Canada to cut the cost of generic drugs. Higher operating costs, which the company said were related to growth initiatives, also held back earnings.
Growth at Shoppers and at rivals like Quebec’s Jean Coutu Group Inc PJCa.TO has been held back in recent years by the generic drug initiatives, and more pressure is on the horizon in Canada, where generic prices are among the highest in the world.
In January, a group of Canadian provinces and territories agreed to cap the prices of six widely-prescribed generic drugs at 18 percent of their brand-name equivalents by April 1. Current caps range from 25 and 40 percent.
At the time, Saskatchewan Premier Brad Wall told Reuters that more could be done to cut the cost of generics, and said policymakers would discuss next steps in the spring.
Shoppers Drug’s profit dipped to C$175 million ($176 million), or 85 Canadian cents a share, in the fourth quarter, from C$176 million, or 82 Canadian cents.
Buybacks have boosted earnings per share, and on Thursday Shoppers said it had renewed its share repurchase program. It will buy up to 10.2 million shares, or 5 percent of shares outstanding, by February 14, 2014. Under the current program, the company has purchased 8.3 million common shares.
Analysts, on average, had expected earnings of 84 Canadian cents a share, according to Thomson Reuters I/B/E/S.
Sales rose 4.4 percent to C$2.72 billion, above the average estimate of C$2.67 billion.
Shares rose 1.7 percent to C$42.35 in early trading on the Toronto Stock Exchange.
Reporting by Allison Martell in Toronto and Shounak Dasgupta in Bangalore; Editing by Nick Zieminski