Shoppers Drug Mart has slashed its outlook for growth in prescription sales as it braces against new rules in Ontario that the pharmacy chain says will cut into its bottom line.
Canada’s largest drugstore chain (TSX:SC) saw a six per cent boost in prescription sales in its first-quarter results Wednesday, helping boost overall revenue and profits compared to a year ago.
But the chain said it expects growth in prescription sales in the coming quarters to slow if Ontario passes a bill that aims to reduce the price of generic drugs through the elimination of professional allowances.
In an updated outlook released as part of its results, the company lowered its growth expectations for prescription sales this year to between two and three per cent, from earlier guidance of between four and five per cent.
Shoppers said it earned $116 million, or 53 cents per diluted share, in the first quarter of 2010, up from $107 million, or 49 cents per share a year ago.
Sales grew to $2.3 billion from $2.2 billion last year, as the company benefited from sales growth in all regions, led by Quebec and Western Canada. Same-store sales increased 3.1 per cent in the quarter.
Analysts surveyed by Thompson-Reuters had expected first-quarter earnings of $118 million or 54 cents per share on revenue of $2.3 billion.
“We are pleased with our first-quarter results, especially in light of the fact that we experienced a weaker cough, cold and flu season compared to a year ago,” president and chief executive Jurgen Schreiber said in a statement.
The Toronto-based company has been at the forefront of a fight against the proposed ban on the allowances generic drug makers pay to pharmacists to stock shelves with their products.
The provincial government says the payments inflate drug costs for consumers, but pharmacists counter the fees help pay for services to customers.
Prescription sales increased 6.3 per cent in the first quarter to $1.16 billion, accounting for 49.8 per cent of the company’s sales mix. Same-store prescription sales increased 4.1 per cent.
The company says prescription sales growth continues to be driven primarily by strong growth in the number of prescriptions filled, while the increased use of generic medicine continues to have a deflationary impact on sales.
In the first quarter, generic drugs made up 54.2 per cent of dispensed prescriptions, compared with 52.8 per cent in the comparable period last year.
Meanwhile, sales of merchandise, cosmetics and other products increased 5.1 per cent in the first quarter to $1.17 billion, with the company reporting sales gains in core categories. On a same-store basis, front store sales increased 2.1 per cent.
Shoppers opened 27 drug stores in the quarter, 11 of which were relocations, and closed one smaller drug store. It owns 1,303 stores.
Shares in the company were down 50 cents or 1.34 per cent at $36.74 in afternoon trading on the Toronto Stock Exchange.