Jean Coutu second-quarter revenue up 7.3 per cent, chain earns $14.9 million

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(The Canadian Press)

By Ross Marowits, The Canadian Press

MONTREAL - Growing second-quarter sales at Jean Coutu's (TSX: PJC-A.TO) generic drug manufacturing subsidiary helped the Quebec pharmacy giant offset on its books the final impact from losses generated by a big investment in the U.S.-based Rite Aid (NYSE: RAD) chain.

Drugmaking division Pro-Doc reported gross sales of $22.7 million in the quarter, up from $5.2 million a year earlier. Jean Coutu's pharmacists, who are free to order from any generic manufacturer, rely on Pro Doc to supply about 60 per cent of its needs for a lineup of some 300 drugs.

Jean Coutu has finally written off its 28 per cent stake in Rite Aid, as losses exceeded the carrying value of the investment. During the quarter, its share of the U.S. chain's losses amounted to $24.3 million compared with $73.1 million a year earlier.

Overall, Jean Coutu earned $14.9 million, or seven cents per share, in the period ended Aug. 29. That compared with a loss of $39.1 million or 16 cents a year earlier.

"We are very satisfied with our second-quarter results," CEO Francois Coutu said during a conference call.

"Our organization showed a solid operating performance and retail sales increased significantly despite the economic slowdown."

Earnings before specific items and share of loss in Rite Aid was 16 cents per share, up two cents from the second quarter of 2009.

Revenues grew by 7.3 per cent in the quarter to $608.7 million, up from $567.5 million in the year-earlier period.

Sales for stores open a year grew by 3.8 per cent, including a 1.3 per cent gain for non prescription drugs. Total sales were up 6.7 per cent, including an increase of 9.1 per cent for prescriptions and 3.7 per cent for front-end sales.

The Montreal-area company attributed the improved revenue to overall market growth and the expansion of its network of franchised stores.

The Jean Coutu network had 362 franchised stores by the end of the quarter. It plans to add at least 25 locations this year and more than 100 within five years.

"We want to make sure that we don't lose sight and that we actually invest back in our market and probably invest a lot more than most of our competitors and that's why we stay No. 1 in this market," Coutu told analysts.

Irene Nattel of RBC Capital Markets said the results were in line with expectations, "driven by stable performance from store operations and incremental contribution from Pro Doc, the company's generic drug unit."

Margins remained relatively stable, growing by five per cent.

Same-store pharmacy sales grew by 5.8 per cent during the quarter, reflecting solid prescriptions as Quebec's universal drug coverage cushions any negative impact of the recession, she wrote in a note to clients.

On the Toronto Stock Exchange, Jean Coutu shares gained six cents at $9.93 in morning trading.