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BELLEVUE, Wash., Feb 2, 2005 (BUSINESS WIRE) -- drugstore.com, inc. (Nasdaq:DSCM), a leading online provider of health, beauty, vision, and pharmacy products, today announced its financial results for the fourth quarter and full year ended January 2, 2005.
The company reported a 47% year-over-year increase in net sales for the full year, to $360.1 million, and fourth quarter 2004 net sales of $103.6 million, the largest quarterly revenue in the history of the company.
"Many of our key metrics -- revenues, customer growth, order volumes, and basket sizes -- are showing robust growth," said Dawn Lepore, chief executive officer and chairman of the board of drugstore.com, inc. "These results underscore both strong and sustained consumer demand, and our ability to execute in our business."
"We're also seeing excellent growth in our flagship segments," said Bob Barton, vice president and chief financial officer of drugstore.com, inc. "For the fourth quarter, mail-order pharmacy net sales increased 41% year-over-year, and our OTC business (excluding our wholesale operations)(1) saw a year-over-year increase of 28% in net sales."
Gross margin was 20.2% for the fourth quarter, growing 50 basis points over the third quarter of 2004, largely due to an increased proportion of higher-margin OTC sales. Gross margin was 20.3% for the full year. Gross margin for the fourth quarter declined by 200 basis points from the fourth quarter of 2003, in part due to an increase in shipping costs resulting from the company's Free 3-day Shipping offer that was implemented during fiscal year 2004, and a higher proportion of lower-margin sales. However, the company saw strong sales from repeat customers and 34% growth in gross profit dollars.
Net loss for the fourth quarter was $5.4 million, or $0.07 per share, and $47.7 million, or $0.62 per share, for the year. Adjusted EBITDA loss was $1.2 million for the fourth quarter and $5.8 million for the entire year.(2) The fourth quarter net loss reflects $400,000 of CEO transition costs and a $250,000 write-down of decommissioned software associated with the company's Custom Nutrition Services platform that had been previously capitalized.
As previously disclosed, drugstore.com, inc. operates on a 52/53-week retail calendar year, with each quarter in a 52-week fiscal year representing a 13-week period. Fiscal year 2004 was a 53-week fiscal year, with the fourth quarter representing a 14-week period.
Outlook for the First Quarter 2005 and Full Year 2005
Stated Lepore, "We have proven our ability to grow net sales, but I was brought on board to take a hard look at this business, and to leverage its sales growth and produce long-term, sustained profitability. I very strongly believe that drugstore.com has an exciting opportunity, but we need to invest in our brand, marketing and technology. Our fiscal 2005 guidance reflects that plan."
For the 2005 fiscal year, drugstore.com, inc. is targeting net sales in the range of $400 million to $420 million, with OTC net sales targeted to grow by 20% to 30%, mail-order pharmacy net sales by 15% to 23%, vision net sales by 5% to 16% and local pick-up pharmacy net sales remaining relatively flat. The company is targeting a GAAP net loss in the range of $19 million to $24 million, and an EBITDA loss in the range of $3 million to $8 million, for the full fiscal year. For the first quarter of 2005, the company is targeting a net sales range of $86.5 million to $93.5 million, a net loss range of $7.5 million to $9.5 million, and an EBITDA loss range of $3 million to $5 million. Note: the net loss ranges provided do not reflect the implementation of Statement of Financial Accounting Standards No. 123R ("Share Based Payments"), which will be effective July 1, 2005. During the year the company will update its guidance as necessary to reflect any impact of implementing this standard.
Fiscal 2005 is a 52-week year, with the first quarter representing a 13-week period.
Financial and Operational Highlights for the Fourth Quarter of 2004
(all comparisons are made with the fourth quarter of 2003, unless otherwise noted)
Net Sales Highlights:
Key Customer Milestones:
Other Financial Highlights:
Conference Call
Investors, analysts, and other interested parties are invited to join the drugstore.com™ quarterly conference call on Wednesday, February 2, 2005 at 8:00 a.m. ET (5:00 a.m. PT). To participate, callers should dial 800-240-2134 (international callers should dial 303-262-2140) 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, February 4, 2005 at 800-405-2236 (enter pass code 11021339) or internationally at 303-590-3000 (enter pass 11021339) beginning two hours after completion of the call.
Non-GAAP Measures
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, non-cash marketing expenses and stock-based compensation, and adjusted to exclude non-cash charges for impairment of goodwill, other intangible assets and a non-cash litigation settlement. 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 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 EBITDA measures to investors, management believes that including 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 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 adjusted EBITDA profit or loss.
drugstore.com, inc. also uses non-GAAP measures in which wholesale OTC sales are excluded from OTC segment sales data. These non-GAAP measures are provided to enhance the user's overall understanding of the company's financial performance in the OTC segment. Management believes that these reporting metrics provide 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 the OTC segment. By excluding wholesale OTC sales from OTC sales data, the company can more effectively assess the buying behavior of, and the company's financial performance with respect to, its own OTC customers (those customers making purchases through Web sites owned by drugstore.com, inc. and its subsidiaries). However, these non-GAAP measures should not be considered in isolation, or as a substitute for, or as superior to, OTC segment sales data prepared in accordance with GAAP, or as a measure of the company's overall performance in the OTC segment. OTC segment sales measures are the closest financial measures prepared by the company in accordance with GAAP in terms of comparability to OTC segment sales measures that exclude wholesale OTC sales.
About drugstore.com, inc.
drugstore.com, inc. (Nasdaq:DSCM) is a leading online provider of health, beauty, vision, and pharmacy products. 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.
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, fluctuations in the stock market, changes affecting the Internet, online retailing and advertising, the company's limited operating history, 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, recent changes in senior management, 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 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 and 10-Q and the Form 8-K filed with the SEC on October 14, 2004. drugstore.com, inc. expressly disclaims any intent or obligation to update any forward-looking statement, except as otherwise specifically stated by it.
(1) Wholesale OTC net sales are generated by the company's December 2003 agreement to provide fulfillment services to Amazon.com, Inc. A reconciliation of OTC net sales to OTC net sales excluding wholesale OTC is included in the financial data accompanying this press release.
(2) Adjusted EBITDA loss is 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, and adjusted to exclude non-cash charges for impairment of goodwill, other intangible assets and a non-cash litigation settlement. A reconciliation of net loss to adjusted EBITDA loss is included in the financial data accompanying this press release.
(3) Includes $4.5 million in wholesale OTC net sales
(4) Revenue from repeat customers excludes wholesale OTC net sales
(5) Active customer base reflects those customers who have purchased at least once within the last 12 months. Note that both the active customer base (a trailing 12-month number) and average annual spend per active customer exclude net sales and orders associated with the company's wholesale OTC fulfillment business, and reflect only the activity of customers making purchases through Web sites owned by drugstore.com, inc. and its subsidiaries
(6) See footnote 5
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SOURCE: drugstore.com, inc.
drugstore.com, inc.
Judith McGarry, 415-971-2900
jmcgarry@drugstore.com
or
Investor Relations:
Chris Danne or Brinlea Johnson
415-217-5865 or 415-269-2645
chris@blueshirtgroup.com
brinlea@blueshirtgroup.com
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