Sales growth and cost cutting helped push Shoppers Drug Mart profits higher in the first quarter, the drugstore chain said Wednesday.

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Shoppers Drug Mart has already reduced hours at seven London, Ont., outlets in resonse to Ontario's move to cut payments made for generic drug sales. ((CBC))

Shoppers says it earned $116 million, or 53 cents per diluted share, up from $107 million, or 49 cents per share a year ago.

Those results were slightly lower than analyst expectations, which pushed the stock down in trading on the TSX. The company lost nearly two per cent to $35.51 in Toronto on Tuesday. Analysts surveyed by Thompson-Reuters had expected first-quarter earnings of $118 million or 54 cents per share on revenue of $2.3 billion.

Sales grew 5.7 per cent to $2.321 billion from $2.2 billion last year. Growth came across all regions but were strongest in Quebec and Western Canada. Same-store sales — a key retail metric of sales at stores open more than a year — increased 3.1 per cent in the quarter.

The company opened 27 drugstores in the quarter, 11 of which were relocations, and closed one smaller drug store. It now owns 1,303 stores.

The company also declared a dividend of 22.5 cents per share, unchanged from the previous quarter.

Ontario generic drug spat

CEO Jurgen Schreiber took an optimistic tone on the results, especially given the relatively mild cold and flu season, but warned that revenues will be inevitably eroded in future if the Ontario legislature passes a bill to reduce generic drug prices through the elimination of payments paid to drugstores by generic drug makers.

Shoppers and rival Rexall Inc. have been united in their opposition to the law and have said store closings and layoffs will come if the province goes ahead. It's been estimated that the fees bring in $750 million annually.

Generic sales are grabbing an increasingly large percentage of the drug market — they made up 54.2 per cent of dispensed prescriptions during the quarter, compared with 52.8 per cent in the comparable period last year.

Although it is still reviewing the situation, Shoppers cut $100 million from its 2010 capital expense budget to shore up its balance sheet in anticipation of lower revenues.

It also reduced its forecast for prescription drug growth sales by almost half — to two to three per cent from four to five per cent.