April 27, 2009 / 11:26 AM / 9 years ago

UPDATE 3-Jean Coutu to boost store size as loss widens

* To boost square footage by 8.5 pct

* Share loss C$3.11 vs C$1.08

* Increases dividend 12.5 pct to 4.5 Canadian cents

* Same store sales up 6.4 percent

* Shares up 3.2 pct (Recasts, adds analyst comments, updates share price)

By Scott Anderson

TORONTO, April 27 (Reuters) - Jean Coutu Group PJCa.TO plans to increase the size of its stores by almost 9 percent this year as the drug-store chain moves to fend off rising competition in its home territory of Quebec.

The Montreal-based chain, which reported a wider fourth-quarter loss on its investment in U.S. drug store chain Rite Aid (RAD.N), said it plans to increase the total square footage of its stores by 8.5 percent to 9 percent.

It also said it has earmarked about C$80 million ($66 million) in capital expenditures for this year.

This was seen as a defensive move by some as Shoppers Drug Mart SC.TO, Canada’s biggest pharmacy chain, eyes the lucrative Quebec market and its growing prescription sales.

The largely French-speaking province is a highly coveted market because of the high number of prescriptions dispensed there — an average 90,000 per drug store annually versus 40,000 elsewhere in Canada.

“This is partially a defensive move to stave off expansion by others in Quebec, particularly Shoppers Drug Mart, but it’s also offensive in that the company hasn’t been aggressive over the last few years in expanding their network in Quebec due to perhaps being distracted by the Rite Aid acquisition,” said David Hartley, an analyst at BMO Capital Markets.

In early January, McKesson Corp (MCK.N), a U.S.-based distributor of pharmaceuticals, bought the rights to acquire the stores of independent drugstore chain Uniprix Inc, stepping up the turf wars in Quebec.

Uniprix is the second-biggest pharmacy chain in the province and has 400 stores under the Uniprix, Unipharm and Uniclinique banners.

This was the second major deal by McKesson in the past year. In June it bought Groupe PharmEssor Inc, which operates 270 Proxim and ProxiMed drugstores in Quebec, for an undisclosed amount.

Coutu’s shares, which have dropped more than 15 percent in the past year, were up 3.2 percent at C$8.64 on the Toronto Stock Exchange on Monday morning.


Coutu said it lost C$733.6 million ($603.1 million), or C$3.11 a share, in the quarter ended Feb. 28, compared with a loss of C$269.2 million, or C$1.08 a share, for a year earlier.

Revenue was C$607.2 million, up from C$553 million in the year-ago quarter. It also boosted its quarterly dividend by 12.5 percent to 4.5 Canadian cents.

Coutu said its Canadian stores showed a 6.4 percent increase in total retail sales, with pharmacy sales up 7.5 percent.

The company said its share of the loss at Rite Aid, the No. 3 U.S. drugstore chain, was C$768.8 million, or C$3.26 a share. Coutu holds a 30 percent stake in the company.

Earlier this month, Rite Aid said it lost $2.29 billion, or $2.67 a share, which included noncash charges to write down the value of goodwill and stores, and a tax valuation allowance.

Before specific items, including Rite Aid’s loss, Jean Coutu earned C$38.5 million, or 16 Canadian cents a share.

Analysts had expected earnings of 14 Canadian cents a share and revenue of C$568.7 million.

The company also said that if its share of the Rite Aid loss exceeds the carrying value of its investment, it would reduce the carrying value to zero and cease recording its share of loss in Rite Aid.

$1=$1.21 Canadian Reporting by Scott Anderson; editing by Rob Wilson

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