Shoppers Drug Mart boosts dividend

TORONTO — Shoppers Drug Mart Corp. (TSX:SC) boosted its dividend by more than 10 per cent, Thursday as it reported better than expected fourth-quarter results and growing sales, despite reforms that hit prescription sales.

TORONTO — Shoppers Drug Mart Corp. (TSX:SC) boosted its dividend by more than 10 per cent, Thursday as it reported better than expected fourth-quarter results and growing sales, despite reforms that hit prescription sales.

Canada’s largest drug store chain earned $171.2 million, or 79 cents per share in the 12 weeks ended Jan .1, compared with $171 million a year ago.

The average analyst estimate had been for a profit of 75 cents per share.

Shoppers’ results were expected to fall from last year after the Ontario government implemented changes to generic drug legislation that the chain said would hammer its bottom line.

Prescription sales make up about half of Shoppers’ business, but the company offset some of the losses on the pharmacy side through its plan to expand its offerings.

In a sign of confidence about the future, Shoppers boosted its quarterly dividend by 11 per cent to 25 cents per share.

Revenue for the quarter totalled $2.56 billion, up three per cent from $2.49 billion a year ago, driven by sales of beauty products, candy and groceries. Non-pharmacy sales increased 5.5 per cent to $1.4 billion.

Same-stores sales at locations open at least a year grew 1.7 per cent, led by gains in Alberta and Quebec.

Meanwhile, prescription sales fell 0.2 per cent to $1.1 billion, as three per cent growth in the number of prescriptions filled offset lower prices, as generic drugs became cheaper and more common.

Generic drugs made up about 57 per cent of all prescriptions filled in the fourth quarter, compared with 53 per cent a year ago.

“We are encouraged by our performance in the fourth quarter and the momentum it provides as we prepare to confront the challenges and capitalize on the opportunities that lie ahead in 2011 and beyond,” said David Williams, Shoppers chairman.

Last week, an Ontario court ruled that the provincial government had no authority to ban pharmacy chains, like Shoppers, from substituting their own discount brand of prescription drugs for those made by big pharmaceutical companies.

Shoppers said the decision will allow it to cut costs by using its own version of drugs rather than those bought from a third-party manufacturer.

Shoppers chief executive Jurgen Schreiber is leaving the company on Feb. 15.

Schreiber had been a vocal opponent of the Ontario government’s move to cut the price of generic drugs paid for by the provincial drug plan and reduce the payments generic companies make to pharmacists.

The better-than-expected results indicate Shoppers is doing a good job of offsetting some of the negative effects from the drug reform with cost cutting and increasing efficiency, said Brian Yarbrough, a retail analyst at Edward Jones.

But the company still faces questions about its leadership and future rounds of drug reforms that will begin to be phased in this spring, when generic drug prices begin to fall for customers not covered by a public plan.

“That’s going to be where it gets interesting here as we watch that occur, its going to be hard to grow earnings growth for the next two, two and half year, there’s going to be a lot of headwinds,” he said.

For the full year, the company earned $591 million or $2.72 per share, up from $585 billion or $2.69 in 2009.

Sales amounted to $10.4 billion, up four per cent from $9.9 billion in 2009, while same-store sales grew 2.1 per cent.

Shoppers shares gained eight cents to $38.56 in afternoon trading on the Toronto Stock Exchange.

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