April 29, 2008 / 11:12 AM / 10 years ago

Jean Coutu results hit by Rite Aid loss

TORONTO (Reuters) - Jean Coutu Group PJCa.TO reported a third-quarter loss on Tuesday, as the Canadian drugstore chain took a big hit from its stake in U.S. pharmacy Rite Aid Corp (RAD.N).

Jean Coutu, which sold its Brooks and Eckerd drugstore chains to Rite Aid last year for cash and stock, reported a loss of C$269.2 million ($265.8 million), or C$1.08 a share, for the 13 weeks through March 1. That compared with a profit of C$232.1 million, or 89 Canadian cents a share, in the same period last year.

The company said its share of after-tax losses from Rite Aid was C$332.1 million, or C$1.19 a share.

Earlier this month, Rite Aid posted a loss of $952.2 million, largely due to a big tax charge, as it struggled to revamp its business amid stiffer competition.

Jean Coutu closed the Brooks and Eckerd deal last June for $2.36 billion in cash and 250 million shares of Rite Aid. As of April 25, it held a 31.7 percent equity stake in the U.S. company.

Excluding the Rite Aid loss, Jean Coutu said it earned 12 Canadian cents a share.

Analysts had expected the company to earn 14 Canadian cents per share, excluding Rite Aid, according to Reuters Estimates.

Jean Coutu stock was down 40 Canadian cents, or 4.1 percent, at C$9.40 on the Toronto Stock Exchange at midday.

WINTER WOES

Francois Coutu, president and chief executive, said in a conference call that inclement winter weather, a quiet flu season, and lower prices for generic drugs affected the entire industry during the quarter.

He also said the strong Canadian dollar resulted in double-digit price drops in some health and beauty products.

“Above all, what you should look at is that, even in the face of reduction of generic (drug) prices as well as health and beauty price deflation, we posted a 5 percent increase in sales, and not many retailers can claim that at this time.”

Nonprescription drugs, which Coutu said make up around 25 percent of front-end sales, were up a modest 0.6 percent, compared with 9.4 percent in the year-ago quarter due to a quiet flu season.

Over the entire network, sales were up 5 percent. Sales at Canadian stores open at least 12 months rose 4.1 percent as same-store pharmacy revenue rose 7.3 percent. Front-end sales declined 1.2 percent.

Jean Coutu said third-quarter revenue fell to C$553 million from C$3.7 billion without last year’s contribution from Brooks and Eckerd stores.

Operating income before amortization was up 4.1 percent in Canada to C$56.5 million.

As of March 1, the company said it had C$35.6 million worth of investments in Canadian third party asset-backed commercial paper. Jean Coutu said that as a result of the valuation during the quarter, it recognized a further C$2.9 million after-tax provision for losses on those holdings.

The company declared a dividend of 4 Canadian cents per share, payable on May 30.

($1=$1.01 Canadian)

Reporting by John McCrank; editing by Rob Wilson

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