February 10, 2011 / 4:26 PM / in 7 years

UPDATE 3-Shoppers Drug profit tops estimates, dividend up

* Q4 EPS C$0.79 vs yr-ago C$0.79, forecast C$0.75

* Total sales gain 3 percent to C$2.56 billion

* Increases annual dividend by 11 percent

* Board OKs buyback of up to 8.7 million shares (Adds details from conference call)

TORONTO, Feb 10 (Reuters) - Shoppers Drug Mart Corp SC.TO reported a slightly higher quarterly profit on Thursday that beat market expectations, as strong sales at the front end of its stores offset weakness in its prescription-drug business.

Shoppers, Canada’s biggest drugstore chain, said front-of-store, or nonprescription, sales rose 5.5 percent to C$1.41 billion, with strong gains in the beauty, confection and convenience food and beverage categories.

At stores open a year or more, a key measure for retailers known as same-store sales, front-of-store sales were up 3.7 percent.

“The highlight of the quarter is the surprisingly strong front-store same-store sales growth,” Raymond James analyst Kenric Tyghe said.

Sales were driven by aggressive promotions and successful new product introductions, such as private-label and convenience food items, Tyghe said.

The company has been pushing hard into markets beyond drugs, selling food and beauty products, and making its outlets more like department stores.

Shoppers is also planning beauty boutique formats, in order to draw new customers who would not otherwise not visit its drugstores.

Meanwhile, grocers such as Loblaw Cos (L.TO) have been devoting more store space to offer prescription and nonprescription drugs in their stores.

Shoppers’ results come days before the Chief Executive Jurgen Schreiber steps down on Feb. 15. [ID:nN26187339]

“We have established a board-led CEO search committee. They have engaged an executive search firm,” Chairman David Williams said on a conference call with analysts.

The committee is scouting for talent on a global scale to replace Schreiber, Williams said.

PRESCRIPTION SALES DOWN

Prescription sales fell 0.2 percent to C$1.15 billion due to a decline in prices that drug stores are allowed to charge for generic drugs in several Canadian provinces.

Shoppers has been affected by steps taken by the Ontario government to cut the cost of generic prescription drugs. Quebec has followed suit. Other big chains such as Rexall, owned by privately held Katz Group, and Quebec-based Jean Coutu (PJCa.TO) are also expected to take a hit.

Fourth-quarter earnings were C$171.2 million, or 79 Canadian cents a share, compared with C$171.1 million, or 79 Canadian cents, a year earlier.

Total sales rose 3 percent to C$2.56 billion. Shoppers said it expects sales to rise by 2 percent to 3 percent in 2011.

Analysts on average had forecast earnings of 75 Canadian cents a share on revenue of C$2.58 billion.

The company said on Thursday it has set a share repurchase program, with the board authorizing a buyback of up to 8.7 million common shares. It also announced an 11 percent increase in its annual dividend.

The stock, which has shed 10 percent in the last 52 weeks, closed up 6 Canadian cents, or 0.2 percent, at C$38.54 on Thursday on the Toronto Stock Exchange.

$1=$1.00 Canadian Reporting by S. John Tilak; editing by Peter Galloway and Rob Wilson john.tilak@thomsonreuters.com; +1 416 687 7918

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