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BELLEVUE, WA - April 28, 2004 - drugstore.com, inc. (NASDAQ: DSCM), a leading online retailer of health, beauty, vision, and pharmacy products, today announced its financial results for the quarter ending March 28, 2004. The company reported a 48% year-over-year increase in quarterly net sales to a record $84.4 million, a 73% year-over-year increase in gross profit to $18.1 million, and a 19% year-over-year reduction in quarterly net loss.
"The first quarter of 2004 was an exciting quarter for us, as we began to see a significant return from our growth initiatives. This was demonstrated by an impressive 46% year-over-year growth in revenue from repeat customers in our over-the-counter business, which shows that our customers are getting more from and are doing more of their shopping at the drugstore.com™ Web store," said Kal Raman, president and chief executive officer of drugstore.com, inc. The company also announced today that it plans to introduce free three-day shipping as a standard benefit for customers placing nonprescription orders of $49 or more, which it believes will further strengthen the company's ability to drive long-term customer value and growth. "We believe that reducing delivery times will encourage our customers, particularly our West Coast customers, to shop more frequently with us," said Raman.
Net sales in the first quarter of 2004 were $84.4 million, representing a 48% increase over the first quarter of 2003. Net sales in the company's over-the-counter (OTC) segment grew by 48% over the first quarter of 2003, net sales in the mail-order pharmacy segment grew by 24% over the first quarter of 2003 and net sales in the local pick-up pharmacy segment were flat. Net sales from the company's recently created vision segment contributed $12.9 million to first quarter net sales.
Gross margin was 21.5% for the quarter, an increase of 310 basis points over the first quarter of the prior year. Net loss for the first quarter was $4.6 million, or $0.06 per share, reflecting a 19% reduction from net loss for the first quarter of 2003. EBITDA loss (a non-GAAP financial measure defined as earnings before interest, taxes, depreciation and amortization of intangible assets, non-cash marketing expense and stock-based compensation) was $961,000 for the quarter, an improvement of 70% over an EBITDA loss of $3.2 million for the first quarter of 2003. A reconciliation of net loss to EBITDA is included in the financial data accompanying this press release. Cash, cash equivalents, and marketable securities at the end of the first quarter totaled $39.4 million.
Operational Highlights for the First Quarter of 2004 and Recent Announcements
Financial Highlights for the First Quarter of 2004 (all comparisons are made with the first quarter of 2003 unless otherwise noted)
Outlook for the Second Quarter and Fiscal Year 2004
For the second quarter of fiscal year 2004, drugstore.com, inc. expects net sales to be in the range of $85 million to $89 million. Of total net sales, the company expects OTC sales to be in the range of $36 million to $38 million, mail-order pharmacy sales to be in the range of $15 million to $16 million, local pick-up pharmacy to be in the range of $21 million to $22 million, and vision to be approximately $13 million. The company plans to implement a new Free 3-Day Shipping service for OTC orders of $49 or more, which is expected to benefit West Coast customers in particular, and also plans to increase spending on marketing to promote its newly acquired vision business and the Free 3-Day Shipping service. As a result, the company anticipates GAAP net loss for the second quarter to be in the range of $4.0 million to $4.5 million, and EBITDA loss to be in the range of $600,000 to $1.1 million.
For the full fiscal year, drugstore.com, inc. confirmed its prior guidance that net sales are expected to grow more than 45% over 2003, to a range of $360 million to $390 million. The company adjusted its forecast of GAAP net loss for the full fiscal year slightly, to a range of $9.8 million to $13.8 million. The company maintained its prior EBITDA guidance for fiscal year 2004, with EBITDA in the range of break-even to a profit of $4.0 million, and believes that it will end the year with more than $40 million in cash. A reconciliation of forecasted net loss range to forecasted EBITDA range (net loss is the most directly comparable GAAP measure) is included in the financial data accompanying this press release.
Non-GAAP Measures
To supplement the consolidated financial statements presented in accordance with GAAP, drugstore.com, inc. uses the non-GAAP measure of EBITDA, defined as earnings before interest, taxes, depreciation and amortization of intangible assets, non-cash marketing expenses, and stock-based compensation. This non-GAAP measure is provided to enhance the user's overall understanding of the company's current financial performance and prospects for the future. Management believes that 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 EBITDA measures to investors, management believes that including EBITDA measures provides consistency in the company's financial reporting. However, EBITDA should not be considered in isolation, or as a substitute for, or as superior to, net loss, cash flows, or other consolidated loss or cash flow data prepared in accordance with GAAP, or as a measure of the company's profitability or liquidity. Although 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 loss is the closest financial measure prepared by the company in accordance with GAAP in terms of comparability to EBITDA profit or loss.
Conference Call
Investors, analysts, and other interested parties are invited to join the drugstore.com™ quarterly conference call on Wednesday, April 28, 2004 at 5:00 p.m. ET. To participate, callers should dial 1-800-867-0938 (international callers should dial 303-262-2190) five minutes beforehand. Investors may also listen to the conference call live at www.drugstore.com (under Corporate Information), by clicking on the "audio" hyperlink. A replay of the call will be available through Friday, April 30th at 1-800-405-2236 or 303-590-3000 internationally (use pass code 576358) beginning two hours after completion of the call.
About drugstore.com, inc.
drugstore.com, inc. (NASDAQ: DSCM) is a leading provider of online health, beauty, vision, and pharmacy solutions. The drugstore.com™ online store provides a convenient, private, and informative shopping experience that encourages consumers to purchase products essential to healthy, everyday living. The online store offers thousands of brand-name personal health care products at competitive prices; a full-service, licensed retail pharmacy; and a wealth of health-related information, buying guides, and other tools designed to help consumers make informed purchasing decisions. Consumers can personalize their shopping experiences with shopping lists, e-mail reminders for replenishing regularly used products, and private e-mail access to pharmacists and beauty experts for questions.
drugstore.com, inc. has been awarded the Verified Internet Pharmacy Practice Sites (VIPPS) certification by the National Association of Boards of Pharmacy (NABP) as a fully licensed facility exercising competent, safe pharmacy practices in compliance with federal and state laws and regulations.
Forward-Looking Statements
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 "expects," "believes," "anticipates," "intends," "may," "will," "plan," "continue," "forecast," "remains," "would," "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, consumer spending, the stock market, changes affecting the Internet, online retailing and advertising, drugstore.com, inc.'s limited operating history, the unpredictability of future revenues and expenses and potential fluctuations in revenues and operating results, risks related to business combinations and strategic alliances, consumer trends, the level of competition, seasonality, the timing and success of expansion efforts, risks related to systems interruptions, possible governmental regulation, and the ability to manage a rapidly growing business. Additional information regarding factors that potentially could affect drugstore.com, inc.'s business, financial condition and operating results is included in its periodic filings with the SEC on Forms 10-K and 10-Q. These forward-looking statements should not be relied upon as representing the company's views as of any date other than the date on which they were made and drugstore.com, inc. expressly disclaims any intent or obligation to update any forward-looking statement made by it after the date on which such statement was made, except as otherwise specifically stated by it.
