* Earnings per share meet analysts' estimates
* Sales up 3.2 pct, slightly ahead of forecasts
* Prescription count jumps 6 pct
* Shares rise 3.2 pct to C$42.42 on Toronto Stock Exchange
By Allison Martell
Nov 13 Shoppers Drug Mart Corp said on
Tuesday revenue from prescriptions grew in the third quarter
despite the drag of regulatory changes, sending its shares
higher, even though profit slipped at Canada's largest drugstore
Shoppers' retail prescription count jumped 6 percent, more
than offsetting the impact of provincial reforms that cut
government support and pulled down the average value of each
prescription filled. The company's total prescription sales rose
1.7 percent to C$1.54 billion ($1.54 billion).
Edward Jones analyst Brian Yarbrough said the accelerating
prescription count beat expectations, and was likely lifting the
stock. In the previous four quarters, prescription count growth
averaged 3.7 percent.
Higher operating and administrative costs held back profit
at Shoppers, but share buybacks pushed earnings per share
"At the end of the day, the earnings were what they were -
they were nothing special," Yarbrough said. "If it wasn't for
share buybacks, there's very limited growth here."
Net earnings receded to C$168 million, or 81 Canadian cents
a share, in the third quarter ended Oct. 6, from C$172 million,
or 80 Canadian cents a share, in the year-before quarter.
After stock repurchases, the number of fully diluted shares
outstanding dropped by 4.2 percent.
All told, sales rose 3.2 percent to C$3.21 billion, slightly
higher than analysts' average forecast.
The company's shares were up 3.2 percent at C$42.42 on the
Toronto Stock Exchange in afternoon trading Tuesday.
Morningstar analyst Matthew Coffina said the market was
probably reacting to the strong prescription volume, which he
said indicates that competition is not tripping up Shoppers. But
he said the chain still faces regulatory headwinds.
In the mid-2000s, a flurry of studies found that generic
drug prices were unusually high in Canada. Provincial
governments, which spend billions each year on drug programs,
saw an opportunity to cut costs.
New rules and price controls, first introduced in Ontario,
swept across the country, holding back growth at Shoppers and
competitors such as Jean Coutu Group Inc.
"The operating margins are still fairly high for Shoppers,
compared, for example, to Walgreen in the U.S.," said Coffina.
"To me, that indicates that given the current regulatory
climate, there's certainly a chance of further regulatory
reforms, in other provinces, but even again in Ontario."
Front-of-store sales, including over-the-counter medication,
cosmetics and food, rose 4.6 percent, and overall same-store
sales, a key measure for retailers, climbed 2.3 percent.
The company said it had to pay higher occupancy costs, wages
and benefits, and its adjusted operating margin fell to 7.64
percent from 8.14 percent a year earlier.
Excluding a restructuring charge and other items, earnings
slipped to C$168 million, or 81 Canadian cents a share, from
C$170 million, or 79 Canadian cents a share.
Analysts, on average, had expected earnings of 81 Canadian
cents a share, according to Thomson Reuters I/B/E/S.