November 9, 2011 / 3:34 PM / in 6 years

UPDATE 5-Shoppers Drug profit rises on higher sales

* Q3 adj EPS C$0.79/shr vs C$0.74

* Overall sales rise 2.1 pct to C$3.11 bln

* Same-store sales rise 1.5 pct

* Shares drop 0.8 pct to C$42.48 on Toronto Stock Exchange (Adds details from conference call, updates share price)

TORONTO, Nov 9 (Reuters) - Shoppers Drug Mart Corp’s SC.TO profits rose in the third quarter due to higher sales and efficiency gains at established stores, Canada’s biggest drugstore chain said on Wednesday.

Strong front-of-store sales, which include over-the-counter medications, cosmetics, and food and drinks, overshadowed a smaller increase in prescription revenue.

Legislation in Ontario and other provinces that has brought down the price of generic prescription drugs in the past few years has put pressure on Shoppers and its competitors.

“This remains a difficult period of transition as we continue to work through government reform initiatives in a number of provinces and the resultant funding and reimbursement pressures this has placed on our pharmacy business,” Chief Executive Domenic Pilla said in a statement.

Pilla started on the job on Nov. 1. The company had been without a permanent CEO since Jurgen Schreiber left in February. [ID:nN26187339]

Asked about his plans on a conference call, Pilla focused on the company’s prescription business. He said Shoppers is well-positioned to benefit from consolidation in the pharmacy business that has been driven by government efforts to reform laws governing drug prices.

The company said its results were helped by a lower effective tax rate and efficiency gains at established stores, which partly offset higher operating expenses at new outlets.

Shares of Shoppers closed down 0.8 percent at C$42.48 in a sharply declining market on Wednesday on the Toronto Stock Exchange.

EASING AWAY FROM PROMOTIONS

Raymond James analyst Kenric Tyghe said front-of-store growth was weaker than he had expected, as the company eased up on aggressive promotions, a move he welcomed.

“I would rather see them protecting both the brand and their market position by having a more measured promotional campaign than just throwing points and throwing margin away,” he said in an interview.

Chief Financial Officer Brad Lukow said the company has been pushing to improve the effectiveness of its promotions.

“What we really started to do in the second quarter of this year is really to try and get a better balance between traffic in the store, top line growth, and margin dollar growth,” he said.

Net income rose 11.5 percent to C$172 million ($169 million), or 80 Canadian cents a share, in the quarter ended Oct. 8.

Excluding a gain from a sale-leaseback transaction involving some retail properties, adjusted income rose to C$170 million, or 79 Canadian cents a share, from C$162 million, or 74 cents, in the same quarter last year.

Analysts, on average, had forecast earnings of 79 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Overall sales increased 2.1 percent to C$3.11 billion, while same-store sales - sales at stores open a year or more - rose 1.5 percent. ($1=$1.02 Canadian) (Reporting by Allison Martell; editing by Frank McGurty and Peter Galloway)

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