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Quebec bill could hurt profits.

VARENNES, Quebec -- The Jean Coutu Group had not released its fiscal 2016 financial results by presstime, but through the third quarter, which ended November 28, 2015, the company was holding its own.

Year-to-date net profit through the third quarter dipped 0.9% to $162.2 million (Canadian), but the results included a $4.7 million income tax provision stemming from the reversal in the Quebec court of appeals of a favorable tax judgment. Excluding that item, net income would have increased 2% to $166.9 million.

Sales, which consist primarily of merchandise sales to franchisee store operators through the company's warehouses, increased 2.5% to $1.94 billion. With franchise fees and other revenues rising 0.9% to $209.78 million, total revenues for the nine months expanded 2.3% to $2.15 billion.

The Coutu franchise store network (now with 416 locations) posted a 2.4% increase in systemwide sales to $3.15 billion, as pharmacy sales rose 2% and the front end generated a 2.5% gain. Same-store sales advanced 1.9%, driven by an identical increase at the front end, while pharmacy same-store sales edged up 1.7%.

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Script counts expanded 2.8% systemwide, and improved 2.5% on a same-store basis.

"We are satisfied with the results of the third quarter of fiscal 2016, which demonstrate the relevance of our strategies and the strength of our organization, despite the restrictive regulatory context which prevails in our industry," stated Francois Coutu, president and chief executive officer. "We will continue to capitalize on dynamic strategic initiatives to maintain our growth."

Coutu's Pro Doc generic drug manufacturing unit has been an important contributor to the company's revenue and profit growth. For instance, in the third quarter, Pro Doc sales totaled $51.7 million (up 2%), while contributing $23.4 million, or 27%, of Coutu's operating income before amortization, which totaled $87 million.

However, Bill 81, which was submitted to the provincial assembly in November, would allow the Quebec minister of health and social services to call for tenders from generic manufacturers and wholesalers in order to select exclusive suppliers for given medicines and set up pricing and supply conditions.

According to analysts, the law, if enacted, would put pressure on the profits of generic drug manufacturers--particularly smaller operators such as Pro Doc.

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Title Annotation:State of the Industry: the Chains: Jean Coutu; Jean Coutu Group Inc.
Publication:Chain Drug Review
Article Type:Financial report
Date:Apr 18, 2016
Words:385
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