* EPS $0.54 meets forecasts; revenue trails estimates
* Front-store sales rise 6 percent
* CEO search in final stages
* To replace board chairman
* Shares close down 1.6 percent
(Adds analyst's comments, conference call details)
By S. John Tilak
TORONTO, April 27 Shoppers Drug Mart Corp
SC.TO, Canada's biggest drugstore chain, posted a higher
quarterly profit on Wednesday, helped by robust sales of
The company picked up market share for health, beauty and
convenience products from grocers and other retailers in the
quarter by offering discounts.
But the gains came at the expense of gross profit margins,
and the shares slipped about 1.6 percent after the results.
A 6 percent increase in front-store sales - the food, drink
and beauty items that account for about half of Shoppers' sales
- offset a continued slump in prescription drug revenue.
"It's a positive sign. Shoppers is as much a convenience
store as it is a pharmacy," Morningstar analyst Matthew Coffina
said. "It helps to balance out some of the headwinds in the
pharmacy side," he added.
Metro Inc MRUa.TO, the first of Canada's big three
grocers to report results this quarter, last week noted "the
difficult competitive environment" as its revenue dropped
marginally and same-store sales rose 0.2 percent.
"In the front of the store, what we've seen is a
continuation of a highly promotional consumer environment,"
Shoppers Chief Financial Officer Brad Lukow said on a
conference call with analysts.
An increasing percentage of the company's sales were coming
under promotions and that was hurting down gross margins, he
"It's great to get the sales number, but it is weighing on
profits," Edward Jones analyst Brian Yarbrough said. "They're
definitely gaining some share because you're not seeing those
sorts of comps from the grocery guys," he said, referring to
the industry shorthand for comparable or same-store sales.
Sales at Shoppers Drug stores open for at least a year, a
key measure for retailers, rose 2 percent in the first
But prescription sales, down 0.4 percent in the quarter,
have taken a hit since the Ontario government last year
instituted reforms that cut the prices of generic drugs in the
province, the biggest market for Shoppers.
Shoppers, without a permanent chief executive since Jurgen
Schreiber left in February, said Holger Kluge will succeed
David Williams as the board's nonexecutive chairman. Williams
is the interim CEO.
Kluge, who joined the board in 2006, has served as chair of
the audit committee since May 2006.
The CEO search is in its final stages, Williams said during
a confenence call with analysts.
Earnings for the first quarter rose to C$118 million ($123
million), or 54 Canadian cents a share, compared with adjusted
earnings of C$114 million, or 52 Canadian cents, a year
Sales rose 2.7 percent to C$2.35 billion, missing the
average analyst estimate of C$2.38 billion, according to
Thomson Reuters I/B/E/S.
Shares of Shoppers, whose rivals include Jean Coutu Group
Inc (PJCa.TO) and Katz Group's Rexall and PharmaPlus chains,
closed down about 1.6 percent at C$40.76 on Wednesday afternoon
on the Toronto Stock Exchange.
The stock is up 2 percent since the start of the year,
compared with a 4 percent rise in the S&P/TSE Canadian Consumer
Staples .GSPTTCS index.
(Reporting by S. John Tilak; editing by Frank McGurty and