February 12, 2009 / 8:22 PM / in 9 years

WRAPUP1-Canada retailers brace for tough times ahead

* Shoppers Drug Mart EPS C$0.80 vs C$0.70

* Shoppers shares rise 5.4 percent to C$43.79

* Canadian Tire adjusted EPS C$1.59

* Canadian Tire shares up 5.6 percent at C$40.88

By Scott Anderson

TORONTO, Feb 12 (Reuters) - Two of Canada’s biggest retailers posted fourth-quarter results that topped expectations on Thursday, but said they were bracing for tough times ahead as the country wades deeper into the economic quagmire.

Shoppers Drug Mart SC.TO reported a 14.4 percent jump in quarterly profit, helped by strong pharmacy and front-of-store sales, and said it saw sales rising through 2009, despite the slowing economy.

Canadian Tire Corp (CTC.TO) (CTCa.TO) reported a 20 percent drop in quarterly profit, hurt by a charge related to currency hedges, but the result still exceeded expectations.

Shares of both companies rose more than 5 percent as investors breathed a sigh of relief that the retailers are showing signs of resilience.

“They were both pretty resilient and they have done a great job in this environment, but I think going into ‘09 it is going to be tough,” said Brian Yarbrough, an analyst at Edward Jones in St. Louis.

Shoppers, Canada’s biggest pharmacy chain, said it earned C$173.1 million ($138.8 million), or 80 Canadian cents a share, in its fourth quarter, up from C$151.3 million, or 70 Canadian cents, a year earlier.

Revenue grew 14.7 percent to C$2.5 billion.

Analysts had expected average earnings per share of 75 Canadian cents, before items, and revenue of C$2.495 billion, according to Reuters Estimates.

But the company said it expects the good times to slow as consumers cut discretionary spending. It expects front-of-store sales, which includes discretionary items including candy bars and other snacks, as well as cosmetics, to grow at a moderate 2.4 percent in 2009, indicating a softer retail environment.

This could be offset by sales growth of about 7.5 percent to 9 percent on a year-over-year basis, underpinned by same-store sales growth of between 5 percent and 6 in its pharmacy division.

“In the front of the store, it is the company’s expectation that the softer market conditions experienced in the latter part of 2008 will prevail throughout 2009, limiting the rate of sales growth in front store categories,” it said in a release.

CANADIAN TIRE CUTS SPENDING

Canadian Tire, the country’s biggest auto parts and household goods retailer, painted a bleaker picture after it cut its projected spending in 2009 by at least 15 percent and said it would focus mainly on network expansion.

Even so, it said it expects to complete about 40 projects across the chain this year accounting for a rise of about 2 percent in square footage.

Total projected capital expenditures for 2009 will be in the range of C$380 million to C$400 million, down from 2008 expenditures of about C$472 million.

It also said it would would refrain from providing any financial guidance for the rest of the year given “the unprecedented volatility in the Canadian economy and the difficulty in assessing the potential magnitude of the impact of the conditions” on its business.

Overall, the company said it earned C$101.2 million, or C$1.24 a share, in the fourth quarter, compared with C$131.3 million, or C$1.61, for the same period a year earlier.

The company said the most recent quarter included a C$19.3 million after-tax expense related to interest rate, foreign exchange and equity-based compensation.

Excluding one-time items, the company said it earned C$1.59 a share.

Canadian Tire, which also operates gasoline bars and a financial services unit, said revenue was C$3.2 billion.

Analysts had expected earnings per share of C$1.52, before items, and revenue of C$2.64 billion. ($1=$1.25 Canadian) (Reporting by Scott Anderson; Editing by Frank McGurty)

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