Shoppers Drug Mart Corp. reported increased sales for its fiscal 2010 third quarter but saw net earnings and operating results decline, with provincial reform of drug pricing and reimbursement impacting results.


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Shoppers Drug Mart sales up, profit down in 3Q

November 11th, 2010

TORONTO – Shoppers Drug Mart Corp. reported increased sales for its fiscal 2010 third quarter but saw net earnings and operating results decline, with provincial reform of drug pricing and reimbursement impacting results.

The Canadian drug store chain said late Wednesday that sales for the third quarter ended Oct. 9 rose 2.6% to nearly $3.1 billion (Canadian) from $3 billion a year earlier, with the company experiencing sales growth in all regions. Same-store sales edged up 1.2% during the quarter.

Prescription sales inched up 0.8% in the third quarter to $1.49 billion, accounting for 48.3% of the sales mix versus 49.1% a year ago, according to Shoppers Drug Mart. On a same-store basis, pharmacy sales increased 0.2%. A reduction in generic drug reimbursement rates, the result of recently implemented drug system reform initiatives, mainly in Ontario, combined with greater generic prescription utilization, had a negative impact on sales dollar growth in pharmacy, the company said.

Shoppers Drug Mart noted that prescription sales growth continues to be driven by strong growth in the number of prescriptions filled, with total pharmacy counts rising 4.4% during the third quarter. On a same-store basis, pharmacy counts climbed 3.4%.

In the front end, revenue gained 4.4% in the third quarter to $1.6 billion, with sales increases continuing in the retailer's core categories. Shoppers Drug Mart said its store network development program, which has boosted selling space 6.6% from a year ago, helped spur sales growth, especially in the front of the store. Front-end sales also got a lift from continued investments in marketing, pricing and promotional activities, the drug chain added. On a same-store basis, front-end sales increased 2.2% during the third quarter of 2010.

Third-quarter net earnings, meanwhile, came in at were $159.3 million, or 73 cents per diluted share, down from $170.9 million, or 79 cents per diluted share, in the prior-year period. Shoppers Drug Mart said the 2010 quarter reflects a pretax charge of $10 million related to a legal settlement. Excluding that charge, adjusted net earnings for the third quarter were $167 million, or 77 cents per diluted share, compared with $171 million, or 79 cents per diluted share, a year earlier.

EBITDA (earnings before interest, taxes, depreciation and amortization) in the third quarter fell to $331.8 million from $341.2 million in the year-ago quarter. Operating income also decreased to $244.4 million from $262.6 million.

Shoppers Drug Mart said the year-over-year decline in third-quarter operating and profit margins can be attributed largely to the impact of recently implemented drug system reform initiatives in certain jurisdictions of Canada, in particular Ontario, which negatively impacted pharmacy reimbursement and margin rates.

"Our results for the third quarter met our expectations as we confront the new pricing and reimbursement pressures facing all of us that are invested and engaged in the practice of community pharmacy," Jürgen Schreiber, president and chief executive officer, said in a statement.

"To that end we continue to work hard, together with our associate owners and their teams at store level, to adjust our operating and service model, generate real cost savings, leverage our strengths and grow the business in a capital-efficient manner," Schreiber stated. "While much hard work remains, I am confident in the capabilities of our people and believe that as a market leader, we remain well-positioned to execute on our strategic priorities and initiatives and capitalize on the business opportunities that lie ahead."

In the third quarter, Shoppers Drug Mart opened 17 drug stores, including 11 relocations, and closed six smaller stores. The retailer also completed eight major drug store expansions and added one Murale luxury beauty store.

As of the quarter's end, the company had 1,310 stores overall, including 1,181 Shoppers Drug Mart/Pharmaprix drug stores, 58 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé pharmacy stores, 63 Shoppers Home Health Care stores and eight Murale stores.

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