April 25, 2013 / 12:17 PM / 6 years ago

Shoppers Drug Mart says generic pricing to hit 2013 same-store sales

(Reuters) - Shoppers Drug Mart Corp, Canada’s biggest pharmacy chain, said tightened pricing controls for generic drugs will push its 2013 pharmacy same-store sales outlook to the lower end of its previous guidance.

The company had previously forecast pharmacy same-store sales growth of between 1.5 percent to 2.5 percent for 2013.

Canada’s provinces and territories agreed in January to tighten caps on prices of six widely prescribed generic drugs to cut costs for private and government health programs.

Saskatchewan Premier Brad Wall then told Reuters that more could be done to cut the cost of generics, among the highest in the world.

The new rules mandate drugstores charge no more than 18 percent of the price of the brand-name equivalent, lower than the previous 25 percent to 40 percent cap. The rules kicked off on April 1.

On a post-earnings conference call, Chief Executive Domenic Pilla said “there will be several impacts” of this new rule in the second quarter.

Price controls have crimped growth at Shoppers and rivals such as Jean Coutu Group Inc in recent years.

Average prescription value fell 4.8 percent in the first quarter ended March 23.

However, total sales in the quarter rose 4 percent to C$2.49 billion mostly on higher over-the-counter medications, food and cosmetics. The cough and cold season in the first half of the quarter also helped drive OTC sales.

Total same-store sales, or sales at stores open for at least a year, rose 2.5 percent. Same-store sales increased 3.3 percent at the front of the store and 1.6 percent at pharmacies.

Shoppers’ net profit at C$119 million ($117 million), or 59 Canadian cents per share, was in line with analysts’ estimates, according to Thomson Reuters I/B/E/S.

“In the context of the current environment and the low confidence around the earnings visibility, an in-line quarter was actually a beat for Shoppers,” said analyst Kenric Tyghe of Raymond James.

The company has also been expanding stores and opening new ones to boost sales.

Shoppers, which also operates the Murale luxury spas, opened seven stores and acquired four in the quarter, taking total number of stores to 1,368.

“The team is actively engaged through all parts of the country, with a focus on Ontario and Western Canada, with regards to acquisition opportunities, “ Chief Financial Officer Bradley Lukow said on the call.

The company has allotted about 70 percent of its 2013 capital expenditure of about C$275 million to expanding its store network.

Shares of the company closed up 15 Canadian cents at C$44.85 on Thursday on the Toronto Stock Exchange. It hit a two-year high of C$45.44 earlier in the day.

($1 = 1.0198 Canadian dollars)

Reporting by Krithika Krishnamurthy in Bangalore; Editing by Sriraj Kalluvila and Anthony Kurian

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