Shoppers Drug Mart's Growth Depends on Cosmetics and Groceries

An expected decline in the growth of prescribed drug spending in 2007 will force Shoppers Drug Mart Corp. (SHDMF.PK) to squeeze more out of its cosmetic and grocery division, according to Octagon Capital analyst Robert Gibson.

On Thursday, the Canadian Institute for Health Information released its latest estimate for drug spending in Canada. In the report, the organization said prescribed drug spending in 2007 of 7.5% which compares to an annual growth rate of 10.5% between 1997 and 2006.

In a note to clients Mr. Gibson said:

To achieve superior sales growth, Shoppers will have to get superior performance out of its front store categories like cosmetics and groceries.

The analyst added that he believes one of the reasons for the decline is the replacement of branded drugs with lower priced generics.

He maintained his "hold" recommendation and left his C$51.90 target price unchanged.