- OTC, Vision and Beauty Sales Outpace Industry
- Net Income of $1.3 Million and Adjusted EBITDA More Than Doubles Year-Over-Year to $5.6 Million
BELLEVUE, Wash. April 29 /PRNewswire-FirstCall/ -- drugstore.com, inc. (Nasdaq: DSCM), a leading online retailer of health, beauty, vision, and pharmacy products, today announced its financial results for the first quarter ended March 29, 2009. The company reported record quarterly net sales of $98.3 million and net income of $1.3 million, which included a one-time benefit of $1.2 million. The company more than doubled adjusted EBITDA to $5.6 million from $2.0 million reported in the same period of the prior year. Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, and amortization of intangible assets and non-cash marketing expense, adjusted to exclude the impact of stock-based compensation expense.
"I am very pleased with our strong first quarter results - posting record quarterly revenues, net income and adjusted EBITDA, and delivering another profitable quarter," said Dawn Lepore, chief executive officer and chairman of the board of drugstore.com, inc. "Against the backdrop of a challenging consumer environment, we achieved OTC sales growth of over 11% year-over-year, drove beauty sales growth of 14% and increased vision sales by 13%. All of these results are significantly ahead of eCommerce and industry trends and we believe we are gaining market share over both traditional brick-and-mortar stores and eCommerce companies. Our success in the current market conditions makes us an even more attractive partner and distribution channel for leading health and beauty companies."
"During the quarter, we experienced strong repeat orders, predominantly of beauty and everyday replenishment items, and drove new customer growth of 15% year-over-year. Margins have remained solid at 28.2% as our profitability initiatives have offset most of the impact of the increased customer utilization on promotional offers. We believe that we have the customer base, product assortment and partnerships to position the company to emerge post-recession even stronger," concluded Ms. Lepore.
Net income for the first quarter of 2009 was $1.3 million, or $0.01 per share, compared to a net loss of $2.7 million, or $0.03 per share, for the first quarter of 2008. The first quarter of 2009 net income includes $1.0 million in non-cash stock-based compensation expense and a $1.2 million benefit from the resolution reached on April 27, 2009, between the company and the State of New Jersey, regarding sales and use taxes owed by the company for the period January 1, 2000 through February 22, 2008.
Outlook for Second Quarter of 2009
For the second quarter of 2009, the company is targeting net sales in the range of $93.0 million to $97.0 million, net income in the range of $250,000 to a net loss of $1.75 million, and adjusted EBITDA in the range of $3.0 million to $5.0 million.
Financial and Operational Highlights for the First Quarter of 2009 (All comparisons are made to the first quarter of 2008 and reflect the reporting of the local pick-up business as discontinued operations)
Key Financial Highlights:
Net Sales Summary:
Key Customer Milestones:
 Net sales from repeat customers exclude Weil Lifestyle, LLC (Weil) related Custom Nutrition Services (CNS) net sales and reflect only the activity of customers making purchases through the Web sites of drugstore.com, inc. and its subsidiaries.
 Active customer base reflects those customers who have purchased at least once within the last 12 months. Both the active customer base (a trailing 12-month number) and average annual spend per active customer exclude net sales and orders generated by the company's CNS fulfillment relationship with Weil, and reflect only the activity of customers making purchases through the Web sites of drugstore.com, inc. and its subsidiaries.
Investors, analysts, and other interested parties are invited to join the drugstore.com, inc. quarterly conference call on April 29, 2009 at 5:00 p.m. ET (2:00 p.m. PT). To participate, callers should dial 866-250-2351 (international callers should dial 303-262-2130) five minutes beforehand. Investors may also listen to the conference call live at http://investor.drugstore.com/, by clicking on the "audio" hyperlink. A replay of the call will be available through Friday, May 1, 2009 by dialing 800-405-2236 (enter pass code 11130228#) or internationally at 303-590-3000 (enter pass code 11130228#) beginning two hours after completion of the call.
To supplement the consolidated financial statements presented in accordance with GAAP, drugstore.com, inc. uses the non-GAAP measure of adjusted EBITDA, defined as earnings before interest, taxes, depreciation, and amortization of intangible assets and non-cash marketing expenses, adjusted to exclude the impact of stock-based compensation expense. This non-GAAP measure is provided to enhance the user's overall understanding of the company's current financial performance. Management believes that adjusted EBITDA, as defined, provides useful information to the company and to investors by excluding certain items that may not be indicative of the company's core operating results. In addition, because drugstore.com, inc. has historically provided adjusted EBITDA measures to investors, management believes that including adjusted EBITDA measures provides consistency in the company's financial reporting. However, adjusted EBITDA should not be considered in isolation, or as a substitute for, or as superior to, net income/loss, cash flows, or other consolidated income/loss or cash flow data prepared in accordance with GAAP, or as a measure of the company's profitability or liquidity. Although adjusted EBITDA is frequently used as a measure of operating performance, it is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Net income/loss is the closest financial measure prepared by the company in accordance with GAAP in terms of comparability to adjusted EBITDA. A reconciliation of adjusted EBITDA to net income/loss is included with the financial statements attached to this release.
In addition, the company uses the non-GAAP measure of free cash flow, defined as net cash provided by (used in) operating activities plus proceeds from the sale of discontinued operations less purchases of fixed assets as disclosed on our consolidated statements of cash flows. Management believes that free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to service debt obligations, make investments, fund acquisitions and for certain other activities. Free cash flow is not a measure determined in accordance with GAAP and may not be defined or calculated by other companies in the same manner. Additionally, this financial measure is subject to variability quarter over quarter as a result of the timing of payments related to accounts payable, including inventory purchases, and accounts receivable. Since free cash flow includes investments in operating assets, management believes this non-GAAP liquidity metric is useful in addition to the most directly comparable GAAP measure of net cash provided by (used in) operating activities, and should not be used as a substitute for it or any other measure determined in accordance with GAAP. A reconciliation of free cash flow to net cash provided by operating activities is included with the supplemental financial schedules attached to this release.
About drugstore.com, inc.
drugstore.com, inc. (NASDAQ: DSCM) is a leading online retailer of health, beauty, vision, and pharmacy products. Our portfolio of brands includes: drugstore.com(TM), Beauty.com(TM), and VisionDirect.com(TM). All are accessible from http://www.drugstore.com and provide a convenient, private, and informative shopping experience while offering a wide assortment of more than 45,000 products at competitive prices.
The drugstore.com pharmacy is certified by the National Association of Boards of Pharmacy (NABP) as a Verified Internet Pharmacy Practice Site (VIPPS) and operates in compliance with federal and state laws and regulations in the United States.
The financial results contained in this press release are preliminary and unaudited. In addition, this press release contains forward-looking statements regarding future events or the future financial and operational performance of drugstore.com, inc. Words such as "target," "believe," "may," "will," "continue," "should," and similar expressions, are intended to identify forward-looking statements. Forward-looking statements are based on current expectations, are not guarantees of future performance and involve assumptions, risks, and uncertainties. Actual performance may differ materially from those contained or implied in such forward-looking statements. Risks and uncertainties that could lead to such differences could include, among other things: effects of changes in the economy, changes in consumer spending, fluctuations in the stock market, changes affecting the Internet, online retailing and advertising, difficulties establishing our brand, and building a critical mass of customers, the unpredictability of future revenues and expenses and potential fluctuations in revenues and operating results, risks related to business combinations and strategic alliances, possible tax liabilities relating to the collection of sales tax, consumer trends, the level of competition, seasonality, the timing and success of expansion efforts, changes in senior management, risks related to systems interruptions, possible governmental regulation, and the ability to manage a growing business. Additional information regarding factors that potentially could affect the business, financial condition, and operating results of drugstore.com, inc. is included in the company's periodic filings with the SEC on Forms 10-K, 10-Q, and 8-K. drugstore.com, inc. expressly disclaims any intent or obligation to update any forward-looking statement, except as otherwise specifically stated by it.
Contact: Investor Relations: Brinlea Johnson 212-551-1453 firstname.lastname@example.org
drugstore.com, inc. Consolidated Statements of Operations (in thousands, except share and per share data) (unaudited) Three Months Ended March 29, March 30, 2009 2008 Net sales $98,315 $92,568 Costs and expenses: (1) (2) Cost of sales 70,552 67,183 Fulfillment and order processing 11,024 11,000 Marketing and sales 9,410 8,314 Technology and content 5,925 5,203 General and administrative 2,896 5,394 Amortization of intangible assets 207 245 Total costs and expenses 100,014 97,339 Operating loss (1,699) (4,771) Interest income, net 43 279 Loss from continuing operations (1,656) (4,492) Gain from discontinued operations, net of tax 2,985 1,807 Net income (loss) $1,329 $(2,685) Basic and diluted net income (loss) per share $0.01 $(0.03) Weighted average shares used in computation of basic and diluted net income (loss) per share 97,355,613 96,392,737 _________ (1) Set forth below are the amounts of stock-based compensation by operating function recorded in the Statements of Operations: Fulfillment and order processing $119 $185 Marketing and sales 350 315 Technology and content 245 358 General and administrative 307 1,226 $1,021 $2,084 (2) Set forth below are the amounts of depreciation by operating function recorded in the Statements of Operations: Fulfillment and order processing $746 $458 Marketing and sales 1 1 Technology and content 2,223 1,505 General and administrative 112 112 $3,082 $2,076
SUPPLEMENTAL INFORMATION: Gross Profit and Gross Margin Information: Three Months Ended (In thousands, unless March 29, March 30, otherwise indicated) 2009 2008 Net sales $98,315 $92,568 Cost of sales 70,552 67,183 Gross profit $27,763 $25,385 Gross margin 28.2% 27.4%
SUPPLEMENTAL INFORMATION: Segment Information: Three Months Ended (In thousands, unless March 29, March 30, otherwise indicated) 2009 2008 Net sales: OTC $72,087 $64,851 Vision 17,441 15,436 Mail-order pharmacy 8,787 12,281 $98,315 $92,568 Cost of sales: OTC $49,927 $45,013 Vision 13,599 12,028 Mail-order pharmacy 7,026 10,142 $70,552 $67,183 Gross profit: OTC 22,160 19,838 Vision 3,842 3,408 Mail-order pharmacy 1,761 2,139 $27,763 $25,385 Gross margin: OTC 30.7% 30.6% Vision 22.0% 22.1% Mail-order pharmacy 20.0% 17.4% 28.2% 27.4% Variable order costs: OTC $6,448 $5,965 Vision 776 743 Mail-order pharmacy 679 929 7,903 7,637 Contribution margin: OTC $15,712 $13,873 Vision 3,066 2,665 Mail-order pharmacy 1,082 1,210 $19,860 $17,748
SUPPLEMENTAL INFORMATION: Reconciliation of Net Income (Loss) to Adjusted EBITDA (See Note 3 below): Three Months Ended (In thousands, unless March 29, March 30, otherwise indicated) 2009 2008 Net income (loss) $1,329 $(2,685) Amortization of intangible assets 207 245 Amortization of non-cash marketing - 573 Stock-based compensation 1,021 2,084 Depreciation 3,082 2,076 Interest income, net (43) (279) Adjusted EBITDA $5,596 $2,014 NOTE 3: Supplemental information related to the company's adjusted EBITDA for the three months ended March 29, 2009 and March 30, 2008 is presented for informational purposes only and is not prepared in accordance with generally accepted accounting principles. Adjusted EBITDA is defined as earnings before taxes, depreciation, and amortization of intangible assets and non-cash marketing expense, adjusted to exclude the impact of stock-based compensation expense. SUPPLEMENTAL INFORMATION: Reconciliation of Forecasted Q2 2009 Net Income (Loss) Range to Forecasted Q2 2009 Adjusted EBITDA Range Range Calculated As: Three Months Ended (In thousands, unless June 28, 2009 otherwise indicated) Range High Range Low Net income (loss) $250 $(1,750) Amortization of intangible assets 215 215 Stock-based compensation 1,100 1,100 Depreciation 3,500 3,500 Interest income, net (65) (65) Adjusted EBITDA $5,000 $3,000
SUPPLEMENTAL INFORMATION: Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow: Three Months Ended (In thousands, unless March 29, March 30, otherwise indicated) 2009 2008 Net cash (used in) provided by operating activities $(1,820) $167 Add: Proceeds from sale of discontinued operations 2,973 - Less: Purchases of fixed assets (1,732) (5,182) Free Cash Flow $(579) $(5,015)
drugstore.com, inc. Consolidated Balance Sheets (in thousands, except share data) March 29, December 28, 2009 2008 (unaudited) (audited) ASSETS Current assets: Cash and cash equivalents $25,976 $25,197 Marketable securities 10,746 12,997 Accounts receivable, net of allowances 9,346 9,108 Inventories 31,913 32,704 Other current assets 2,919 2,128 Assets of discontinued operations 2,983 5,954 Total current assets 83,883 88,088 Fixed assets, net 27,070 28,306 Other intangible assets, net 3,658 3,731 Goodwill 32,202 32,202 Other long-term assets 222 222 Total assets $147,035 $152,549 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $29,434 $31,208 Accrued compensation 3,564 4,416 Accrued marketing expenses 4,382 4,630 Other current liabilities 3,345 4,560 Current portion of long-term debt 2,835 2,998 Liabilities of discontinued operations 2,973 5,946 Total current liabilities 46,533 53,758 Long-term debt, less current portion 2,089 2,567 Deferred income taxes 955 953 Other long-term liabilities 1,105 1,071 Stockholders' equity: Common stock, $.0001 par value, stated at amounts paid in: Authorized shares - 250,000,000 Issued and outstanding shares - 99,531,469 and 96,547,079 as of March 29, 2009 and December 28, 2008, respectively 864,923 864,282 Accumulated other comprehensive income (loss) (45) 57 Accumulated deficit (768,525) (770,139) Total stockholders' equity 96,353 94,200 Total liabilities and stockholders' equity $147,035 $152,549
drugstore.com, inc. Consolidated Statements of Cash Flows (in thousands) Three Months Ended March 29, March 28, 2009 2008 (unaudited) Operating activities: Net income (loss) $1,329 $(2,685) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation 3,082 2,076 Amortization of intangible assets 207 245 Stock-based compensation 1,021 2,084 Other, net (48) (6) Changes in: Accounts receivable (238) 359 Inventories 791 1,643 Other assets (791) 201 Accounts payable, accrued expenses and other liabilities (4,198) (4,383) Net cash provided by (used in) activities of discontinued operations (2,975) 633 Net cash (used in) provided by operating activities (1,820) 167 Investing activities: Purchases of marketable securities (1,700) (14,784) Sales and maturities of marketable securities 3,899 18,438 Proceeds from sale of discontinued operations 2,973 - Purchases of fixed assets (1,732) (5,182) Purchases of intangible assets (134) - Net cash provided by (used in) investing activities 3,306 (1,528) Financing activities: Proceeds from exercise of stock options and employee 48 423 stock purchase plan Proceeds from line of credit - 3,500 Principal payments capital lease and term loan obligations (755) (486) Net cash (used in) provided by financing activities (707) 3,437 Net increase in cash and cash equivalents 779 2,076 Cash and cash equivalents, beginning of period 25,197 18,572 Cash and cash equivalents, end of period $25,976 $20,648
|SOURCE drugstore.com, inc.|
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