The corporate logo of Shoppers Drug Mart is shown. THE CANADIAN PRESS/HO

TORONTO - Shoppers Drug Mart Corp. (TSX:SC) saw its third-quarter profit slip as it took a $13-million restructuring charge linked to downsizing at its head and regional offices to offset the impact of provincial drug-pricing reforms.

The Toronto-based pharmacy operator's net income was $168 million, down from $172 million a year earlier, the company said Tuesday.

Adjusted net earnings per share, excluding the restructuring and other items, were 81 cents, up from 79 cents in the same year-earlier period and in line with analyst estimates.

Sales revenue increased 3.2 per cent to $3.2 billion and included a 2.3 per cent increase in same-store sales.

Shoppers Drug said its net earnings for the third quarter included the $13 million pre-tax restructuring charge related to its decision to cut 80 jobs — some at the head office and others at regional offices.

It also booked an offsetting pre-tax gain on disposal of $13 million in respect of a sale-leaseback transaction involving some of its properties. The prior year's third quarter had a $3-million sale-leaseback gain and no significant restructuring.

"This is a strong performance in the context of a challenging economic and competitive environment," president and CEO Domenic Pilla said.

"And while headwinds remain on the regulatory front, we are encouraged by the early success of our pharmacy growth initiatives, along with the steps we have taken to further reduce costs and promote efficiencies."

In recent years, the retailer has faced an onslaught of changes in Ontario, Quebec and British Columbia that cut generic drug prices to 25 per cent of the price of patented drugs — down from 50 per cent. The company has said those reforms affect revenue by an estimated $750-million a year.

Additional recent changes in Ontario have further cut the costs for the Top 10 generic drugs to 20 per cent of the price of the branded equivalent, which will hit the company even harder.

Shoppers said pharmacy sales were $1.54 billion in the quarter, an increase of 1.7 per cent compared with the same period last year.

That reflected strong growth in the number of prescriptions filled, combined with continued sales gains in the company's MediSystem Technologies and Specialty Health Network businesses, partially offset by a further reduction in average prescription value as the number of generic prescriptions filled increases.

Overall, pharmacy sales accounted for 48 per cent of the company's sales mix, down slightly from 48.7 per cent in the same quarter of last year as front store sales increased 4.6 per cent to $1.67 billion in the quarter.

Shoppers has also been working to mitigate the impact of generic prescrition changes by driving sales at the front of the store, areas of its operations that are separate from its pharmacies, like food and cosmetics.

During the quarter, front store sales were led by strong growth in cosmetics, over-the-counter medications and food and candy.

The company is also looking to improve its supply chain, as well as the productivity at its pharmacy operations, an initiative it expects will provide "significant gains'' over the next year-and-a-half.

BMO analyst Peter Sklar said Shoppers' results were slightly ahead of his expectations as same store sales growth improved more than thought.

"Pharmacy (same store sales) and script count growth benefited from the previously announced acquisition of the 19 retail pharmacies and three central fill pharmacies acquired from Paragon pharmacy," Sklar noted.

Shoppers Drug Mart has 1,363 locations across the country. It opened 10 new stores during the quarter, six of which were relocations, and closed two smaller stores. Shoppers also acquired 21 drug stores in the third quarter, 19 of which from Paragon Pharmacies Ltd.

Retail square footage at the end of the third quarter was up 3.9 per cent from a year ago.

Shoppers also licenses or owns 57 medical clinic pharmacies operating under the name Shoppers Simply Pharmacy, six luxury beauty destinations operating as Murale and owns and operates 63 Shoppers Home Health Care stores, making it the largest Canadian retailer of home health-care products and services.

Shares added three per cent or $1.29 to $42.41 in Tuesday afternoon trading on the Toronto Stock Exchange.

News from © The Canadian Press, 2012