July 22, 2010 / 3:19 PM / 8 years ago

UPDATE 3-Shoppers Drug profit rises, outlook cloudy

* EPS 66 Canadian cents vs 63 Canadian cents

* Same-store sales up 2.7 percent

* Revenue up 5 percent at C$2.4 billion

* Sees full-year 2010 EPS between C$2.66 and C$2.72

(Adds analyst comments, conference call, details, shares)

By Solarina Ho

TORONTO, July 22 (Reuters) - Shoppers Drug Mart SC.TO, Canada’s No.1 pharmacy chain, said on Thursday earnings rose 6.2 percent, driven by stronger sales, but it expects full-year profit to come in below what analysts had forecast earlier.

The company said the results did not reflect the impact of Ontario’s drug pricing initiatives, some of which came into effect July 1. The province, Canada’s most populous, enacted the reforms to cut costs and lower drug prices for consumers.

The province slashed the price of generics to 25 percent of branded equivalents and eliminated the rebates stores receive from the drugmakers. Similar legislation is expected this fall from Quebec.

“The quarter itself was relatively respectable, but it’s almost immaterial, given that it included none of the changes that we saw on the regulatory front,” said Canaccord Genuity analyst Candice Williams.

For the second quarter ended June 19, earnings rose to C$144.6 million ($137.7 million), or 66 Canadian cents a share, from C$136 million, or 63 Canadian cents a share, a year earlier.

Same-store sales, or sales at stores opened more than one year, increased 2.7 percent.

The pharmacy chain, which operates a network of nearly 1,200 stores across the country, said it saw full-year 2010 earnings per share coming in between C$2.66 and C$2.72.

Analysts had been expecting full-year earnings per share of C$2.75, according to Thomson Reuters I/B/E/S.

“We believe the market will be weaker for a period of time. There is a tremendous amount of uncertainty,” Shoppers Chief Executive Jurgen Schreiber said during a conference call.

The company sees pharmacy same-store sales growth between 1 percent and 2 percent for the year, down from the revised 2 to 3 percent stated last quarter. Total 2010 sales were seen growing between 4 percent and 5 percent.

“It calls to light the 2011 consensus assumptions, which still implies a small amount of growth. It questions if — once we have a full year’s impact (of the drug reforms) — they can really manage to squeak out any growth,” Williams said.

Shoppers won’t give 2011 guidance before it releases fourth-quarter results next February, executives said during the call.

“In our assumptions at this point in time — absolutely possible to grow earnings over the next years,” said Schreiber.

“It just needs a tremendous amount of discipline, it needs very rigorous changes. Many of them are already in place. Many of them will be put in place. I mean, we did very significant changes on the capex which you could see.”

The company cut its 2010 capital spending, or capex, estimate by about C$130 million to C$430 million, including the C$100 million announced last quarter.

Schreiber said cost initiatives include cutting hours on a store-by-store basis in several markets, but said no broad reductions are in expected.

Shoppers Drug Mart stock closed up 10 Canadian cents at C$35.60 on the Toronto Stock Exchange.

$1=$1.04 Canadian

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