January 10, 2008 / 12:21 PM / in 10 years

Jean Coutu profit falls on Rite Aid hit

OTTAWA (Reuters) - Second-quarter profit sank 88 percent at Canadian drugstore chain Jean Coutu Group (PJCa.TO), the company said on Thursday, as it took a big hit from its share of losses at partly owned U.S. chain Rite Aid (RAD.N).

Jean Coutu, which last year sold its U.S. Brooks and Eckerd drugstore chains to Rite Aid, reported net earnings of C$9.5 million, or 4 Canadian cents a share, for the quarter ended December 1. That compares with a profit of C$79.3 million, or 30 Canadian cents a share, in the same period last year.

The results include an after-tax loss of C$26.1 million, or 10 Canadian cents a share, from its Rite Aid holding. So far this financial year, Jean Coutu’s share of losses from the No. 3 U.S. pharmacy chain has totaled C$61.2 million.

“I realize that Rite Aid is going through an integration process, the economy is not doing extremely strong south of the border, but for us, it’s still a long-term investment,” Chief Executive Francois Coutu said on a conference call. “Our shareholders should look at it the same way.”

Coutu expects Americans to increase their investment in health care over the next two years, which will benefit the pharmacy sector.

“We saw it here in Canada. (The) United States is about to do the same,” he said. “We’ll be in a great position to grab that growth.”

Rite Aid posted a bigger than expected third-quarter loss of $84.8 million in December, citing consumer caution and a mild flu season.

Jean Coutu also took a C$3.7-million provision to write down the value of its third-party asset-backed commercial paper. The company had C$35.5 million invested in the paper as of December 1.

SALES HIT BY MILDER SEASON

Jean Coutu said revenue fell to C$583 million from C$3.19 billion without last year’s gain from the sales of its Brooks and Eckerd stores.

Operating income before amortization was up nearly 12 percent in Canada, to C$59 million from C$52.7 million.

Retail sales at Canadian stores open at least 12 months rose 6.1 percent as same-store pharmacy sales increased 9.5 percent. Front-end sales growth was nil.

“Like other North American drug store retailers, front-end sales growth figures are being negatively impacted by substantial declines in the sale of allergy, cough, cold and flu medication due to a milder season this year,” Coutu said.

Jean Coutu closed the sale of its U.S. Brooks and Eckerd chains to Rite Aid last June for $2.36 billion in cash and 250 million shares of Rite Aid. As of December 1, 2007, it held a 31.7 percent equity interest in Rite Aid.

Jean Coutu began recording its share of Rite Aid’s results in the first quarter of fiscal 2008.

Its shares rose 3 percent, or 34 Canadian cents, to C$10.50 on the Toronto Stock Exchange after the results were announced. The stock has lost about 28 percent over the past 12 months.

($1=$1.01 Canadian)

Reporting by Jonathan Spicer and Susan Taylor; Editing by Peter Galloway

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