Jean Coutu Group saw sales at its franchise store network edge up in its fiscal 2011 third quarter, while overall revenue came in flat despite a rise in earnings.


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Jean Coutu sees uptick in retail sales

January 7th, 2011

LONGUEUIL, Quebec – Jean Coutu Group saw sales at its franchise store network edge up in its fiscal 2011 third quarter, while overall revenue came in flat despite a rise in earnings.

The Canadian drug store franchisor said Friday that retail sales for its franchise stores rose 2.4% year over year to $945.5 million (Canadian) for the third quarter ended Nov. 27. Sales increased 2.7% in the pharmacy and 1.3% in the front end.

Same-store sales were virtually flat for the quarter, inching up just 0.1%. That result reflected a 0.7% same-store gain in the pharmacy and a 1.7% decrease in the front end, the company said.

During the third quarter, sales of nonprescription drugs, which represented 9.2% of total retail sales, fell by 2%, compared with a 16% rise in the prior-year period, according to Jean Coutu. The company noted that consumer concern about the H1N1 virus had fueled the year-ago quarterly increase of the over-the-counter drug sales.

Jean Coutu said that with the introduction of generic versions of large volume drugs over the last 12 months, generic drugs accounted for 55% of drug prescriptions in the 2011 third quarter versus 51.3% a year earlier. The higher percentage of generics had a deflationary impact on pharmacy retail sales in the fiscal 2011 quarter, reducing growth by 3.5%, according to the company.

The third quarter saw 16 store openings, including the relocation of five stores in the PJC franchise network, and six stores were significantly renovated or expanded, Jean Coutu said. Overall, the company operates a network of 389 franchised stores under the banners of PJC Jean Coutu, PJC Clinique, PJC Santé and PJC Santé Beauté in Quebec, New Brunswick and Ontario.

For Jean Coutu Group overall, sales dipped 0.1% year over year to $677.3 million during the fiscal 2011 third quarter. Merchandise sales to franchisees through Coutu distribution centers accounts for most of the company's revenue.

Operating income before amortization (OIBA) climbed 6.4% in the quarter to $76.1 million. Jean Coutu said the gain stems primarily from a strong operational performance in franchising activities and Pro Doc subsidiary. Meanwhile, net earnings rose $48 million, or 21 cents per share, in the quarter compared with $44.6 million, or 19 cents per share, a year earlier.

"We are satisfied with the results of the third quarter of fiscal year 2011. Net earnings showed a solid increase in spite of a slight decrease of revenue compared to the same period last year, when over-the-counter medication sales recorded a significant rise attributed to the concern of consumers confronted with the H1N1 flu outbreak. By picking up the pace of our expansion projects and implementing our business plan, we achieved the objectives we had set," Francois Coutu, president and chief executive officer, said in a statement.

Jean Coutu Group also gave an update on the expected impact of reduced payments to pharmacies resulting from provincial health care reform. The company said the date of the first step in the implementation of the price reductions of generic drugs in Quebec was set for Dec. 17, 2010, with more price reductions not to be implemented until April 2012 to ensure that generic drug prices aren't higher than any selling prices granted by the insurance programs of other provinces.

Also, a 5% rebate offered by generic drug makers to distributors has been abolished since Dec. 17, and maximum administration fees of 6% have been added to the price of generics by wholesalers since that date. In addition, Jean Coutu Group said, a draft regulation was published on Dec. 22 to amend the maximum professional allowances authorized to owner-pharmacists. As of April 1, 2011, that percentage will be reduced from the previous 20% to 16.5% and, as of April 1, 2012, from 16.5% to 15%.

"We believe that the impact on consolidated results of the company of the measures aiming at reducing the prices of generic drugs should be counterbalanced in the short term by the normal growth of the company's operations," Francois Coutu stated.

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