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BELLEVUE, Wash., Feb 04, 2009 /PRNewswire-FirstCall via COMTEX News Network/ -- 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 fiscal year ended December 28, 2008. The company reported quarterly net sales of $93.9 million and net income of $289,000. The company achieved fourth quarter gross margins of 28.5% and the highest adjusted EBITDA in the history of the company of $5.2 million, up 243% over the fourth quarter of 2007. 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. Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities plus proceeds from the sale of discontinued operations, less purchases of fixed assets, including capitalized internally developed software and website development costs.
(Logo: http://www.newscom.com/cgi-bin/prnh/20070813/AQM043LOGO)
For the year, the company reported net sales of $366.6 million, a net loss of $8.3 million or $0.09 per share, and adjusted EBITDA of $13.9 million, more than double the adjusted EBITDA reported in fiscal year 2007. Additionally, the company reported operating cash flow of $9.9 million for 2008 compared to $7.8 million for 2007.
"I am pleased to report record quarterly OTC revenues, net income, free cash flow and adjusted EBITDA, as we delivered a profitable fourth quarter and achieved positive free cash flow for the year for the first time in Company history," said Dawn Lepore, chief executive officer and chairman of the board of drugstore.com, inc. "Importantly, while holiday sales were clearly impacted by the economy, we saw strong sales of our everyday OTC basics, reinforcing our belief that a large portion of our products are not considered discretionary by our customers. Overall, we continued to drive solid OTC and vision growth of 6.0% and 14.5%, respectively, significantly ahead of eCommerce trends. During the course of 2008, we strengthened our operational efficiencies, increased margins, and more than doubled our full year adjusted EBITDA over last year. These improvements allowed us to be more promotional in the fourth quarter, while maintaining a strong operating model."
"Looking ahead, our fourth quarter results give us confidence that we can and will continue to grow our OTC and vision revenues amidst a more challenging economic environment. January started off strong, with continued demand for everyday OTC basics, increased FSA sales, and customers' capitalizing on our loyalty program -- drugstore.com dollars(TM). Importantly, we also have a number of key initiatives -- such as ramping our strategic partnerships with Medco and Rite Aid, adding new prestige beauty brands, and expanding international sales -- that leverage our existing infrastructure and which should help fuel growth in 2009," concluded Ms. Lepore.
Net income for the fourth quarter of 2008 was $289,000, or $0.00 per share, compared to a net loss of $2.3 million, or $0.02 per share, for the fourth quarter of 2007. The fourth quarter 2008 income includes $1.8 million in non-cash stock-based compensation expense, compared to $1.7 million for the fourth quarter 2007. Net loss for the fiscal year of 2008 was $8.3 million or $0.09 per share, compared to a net loss of $11.5 million, or $0.12 per share, for the fiscal year of 2007. The 2008 fiscal year losses include $3.4 million in non-cash marketing expense (including $1.1 million accelerated in connection with our restructured Rite Aid agreement), $3.2 million related to consulting services, and $7.6 million in non-cash stock-based compensation expense, compared to $2.3 million in non-cash marketing expense, $1.1 million related to consulting services, and $8.8 million in non-cash stock-based compensation expense for the fiscal year of 2007.
Outlook for First Quarter 2009
For the first 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 $0.0 to a net loss of $2.0 million, and adjusted EBITDA in the range of $3.0 million to $5.0 million.
Financial and Operational Highlights for the Fourth Quarter of 2008
(All comparisons are made to the fourth quarter of 2007 and reflect the reporting of the local pick-up business as discontinued operations)
Key Financial Highlights:
-- Cash, cash equivalents, and marketable securities were $38.2 million at
year end, as the Company generated $5.4 million in free cash flow and
$3.6 million from operations during the quarter.
-- Gross margins increased 50 basis points to 28.5%.
-- Total contribution margin dollars increased by over 11% to $19.5
million.
-- Total orders grew by 6% to approximately 1.4 million, while
contribution margin dollars per order grew by 7% to approximately $14.
Net Sales Summary:
-- Core OTC [1] revenues grew by 6% to $69.4 million for the quarter. OTC
net sales grew by 6% to $69.8 million for the quarter, and 11% to
$260.8 million for the year, including Beauty.com growth of 9% for the
quarter and 28% for the year.
-- Vision net sales grew approximately 14.5% to $14.6 million for the
quarter, and 12% to $61.4 for the year.
-- Mail-order pharmacy net sales decreased 25% to $9.6 million for the
quarter and 11.5% to $44.4 million for the year, while contribution
margins dollars increased approximately 8% for the quarter and 12% for
the year.
-- Average net sales per order were $67. Average net sales per order were
$58 for OTC, grew approximately 11% to $112 for vision, and decreased
to $156 for mail-order pharmacy.
-- Net sales from repeat customers [2] represented 76% of net sales.
Key Customer Milestones:
-- We served approximately 406,000 new customers during the quarter, up 8%
over the same period in the prior year.
-- We have now served over 9.8 million customers since inception.
-- The number of active customers [3] was 2.6 million, up 9% year over
year.
Conference Call
Investors, analysts, and other interested parties are invited to join the drugstore.com, inc. quarterly conference call on February 4, 2009 at 5:00 p.m. ET (2:00 p.m. PT). To participate, callers should dial 800-257-1927 (international callers should dial 303-262-2193) 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, February 6, 2009 by dialing 800-405-2236 (enter pass code 11125654#) or internationally at 303- 590-3000 (enter pass code 11125654#) 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 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.
drugstore.com, inc. also uses non-GAAP measures in which CNS sales are excluded from OTC segment sales data. This non-GAAP measure is 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 CNS 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 core OTC customers (those customers making nonprescription 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 CNS sales.
About drugstore.com, inc.
drugstore.com, inc. (NASDAQ: DSCM) is a leading online provider 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 40,000 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.
1. Core OTC net sales is a non-GAAP financial measure that excludes from
OTC net sales the company's Custom Nutrition Services ("CNS") net
sales. CNS sales are generated by sales of customized vitamins through
the company's CNS subsidiary. A reconciliation of OTC net sales to
core OTC net sales is included in the financial data accompanying this
press release.
2. Net sales from repeat customers exclude Weil-related CNS net sales and
reflect only the activity of customers making purchases through the
Web sites of drugstore.com, inc. and its subsidiaries.
3. 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.
Contact:
Investor Relations:
Brinlea Johnson
212-551-1453
brinlea@blueshirtgroup.com
drugstore.com, inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
Three Months Ended Twelve Months Ended
December 28, December 30, December 28, December 30,
2008 2007 2008 2007
Net sales $93,940 $91,307 $366,579 $339,331
Costs and expenses:
(1) (2)
Cost of sales 67,127 65,764 263,697 248,308
Fulfillment and
order processing 10,463 10,889 43,377 39,817
Marketing and sales 9,100 8,369 33,591 30,080
Technology and
content 6,063 4,388 23,011 18,258
General and
administrative 3,878 6,295 19,034 20,928
Amortization of
intangible assets 206 244 867 1,234
Total costs and
expenses 96,837 95,949 383,577 358,625
Operating loss (2,897) (4,642) (16,998) (19,294)
Interest income, net 115 410 631 1,675
Loss from continuing
operations (2,782) (4,232) (16,367) (17,619)
Income from discontinued
operations 3,071 1,888 8,080 6,108
Net income (loss) $289 $(2,344) $(8,287) $(11,511)
Basic and diluted
net income (loss)
per share $0.00 $(0.02) $(0.09) $(0.12)
Weighted average shares
used in computation of:
Basic net income
(loss) per
share 96,540,101 96,229,531 96,481,787 95,350,046
Diluted net income
(loss) per
share 96,643,524 96,229,531 96,481,787 95,350,046
(1) Set forth below are the amounts of stock-based compensation by
operating function recorded in the Statements of Operations:
Fulfillment and
order processing $136 $138 $576 $784
Marketing and sales 471 303 1,619 1,381
Technology and
content 335 289 1,265 1,224
General and
administrative 844 957 4,104 5,412
$1,786 $1,687 $7,564 $8,801
(2) Set forth below are the amounts of depreciation by operating function
recorded in the Statements of Operations:
Fulfillment and
order processing $740 $466 $2,653 $1,826
Marketing and sales 1 - 4 3
Technology and
content 2,162 1,185 7,780 5,252
General and
administrative 114 110 475 423
$3,017 $1,761 $10,912 $7,504
SUPPLEMENTAL INFORMATION: Gross Profit and Gross Margin Information:
Three Months Ended Twelve Months Ended
(In thousands, unless December 28, December 30, December 28, December 30,
otherwise indicated) 2008 2007 2008 2007
Net sales $93,940 $91,307 $366,579 $339,331
Cost of sales 67,127 65,764 263,697 248,308
Gross profit $26,813 $25,543 $102,882 $91,023
Gross margin 28.5% 28.0% 28.1% 26.8%
SUPPLEMENTAL INFORMATION: Reconciliation of OTC net sales, cost of sales,
gross profit, gross margin, variable order costs, and contribution margin
to Core OTC net sales, cost of sales, gross profit, gross margin,
variable order costs and contribution margin (See Note 3 below):
Three Months Ended Twelve Months Ended
December 28, December 30, December 28, December 30,
2008 2007 2008 2007
(In thousands)
Over-the-Counter (OTC):
Net sales $69,809 $65,870 $260,794 $234,282
CNS 409 450 1,774 1,881
Core OTC net
sales $69,400 $65,420 $259,020 $232,401
Cost of sales $48,282 $45,378 $180,252 $164,469
CNS 20 36 132 234
Core OTC cost
of sales $48,262 $45,342 $180,120 $164,235
Gross profit 21,527 20,492 80,542 69,813
CNS 389 414 1,642 1,647
Core OTC gross
profit $21,138 $20,078 $78,900 $68,166
Gross margin 30.8% 31.1% 30.9% 29.8%
CNS 95.1% 92.0% 92.6% 87.6%
Core OTC gross
margin 30.5% 30.7% 30.5% 29.3%
Variable order costs $5,988 $6,479 $23,499 $22,259
CNS 149 144 573 607
Core OTC variable
order costs $5,839 $6,335 $22,926 $21,652
Contribution margin 15,539 14,013 57,043 47,554
CNS 240 270 1,069 1,040
Core OTC
contribution
margin $15,299 $13,743 $55,974 $46,514
NOTE 3: Supplemental information related to the company's Core OTC net
sales, cost of sales, gross profit, gross margin, variable order
costs and contribution margin for the three and twelve months
ended December 28, 2008 and December 30, 2007 is presented for
informational purposes only and is not prepared in accordance
with generally accepted accounting principles
SUPPLEMENTAL INFORMATION: Segment Information:
(In thousands,
unless Three Months Ended Twelve Months Ended
otherwise December 28, December 30, December 28, December 30,
indicated) 2008 2007 2008 2007
Net sales:
OTC $69,809 $65,870 $260,794 $234,282
Vision 14,555 12,708 61,420 54,906
Mail-order pharmacy 9,576 12,729 44,365 50,143
$93,940 $91,307 $366,579 $339,331
Cost of sales:
OTC $48,282 $45,378 $180,252 $164,469
Vision 11,125 9,649 47,279 41,904
Mail-order pharmacy 7,720 10,737 36,166 41,935
$67,127 $65,764 $263,697 $248,308
Gross profit:
OTC 21,527 20,492 80,542 69,813
Vision 3,430 3,059 14,141 13,002
Mail-order pharmacy 1,856 1,992 8,199 8,208
$26,813 $25,543 $102,882 $91,023
Gross margin:
OTC 30.8% 31.1% 30.9% 29.8%
Vision 23.6% 24.1% 23.0% 23.7%
Mail-order pharmacy 19.4% 15.6% 18.5% 16.4%
28.5% 28.0% 28.1% 26.8%
Variable order costs:
OTC $5,988 $6,479 $23,499 $22,259
Vision 664 672 2,899 2,708
Mail-order pharmacy 710 932 3,447 3,967
7,362 8,083 29,845 28,934
Contribution margin:
OTC $15,539 $14,013 $57,043 $47,554
Vision 2,766 2,387 11,242 10,294
Mail-order pharmacy 1,146 1,060 4,752 4,241
$19,451 $17,460 $73,037 $62,089
SUPPLEMENTAL INFORMATION: Reconciliation of Net Income (Loss) to Adjusted
EBITDA (See Note 4 below):
(In thousands, Three Months Ended Twelve Months Ended
unless otherwise December 28, December 30, December 28, December 30,
indicated) 2008 2007 2008 2007
Net income (loss) $289 $(2,344) $(8,287) $(11,511)
Amortization of
intangible assets 206 244 867 1,234
Amortization of
non-cash marketing - 573 3,435 2,290
Stock-based compensation 1,786 1,687 7,564 8,801
Depreciation 3,017 1,761 10,912 7,504
Interest income, net (115) (410) (631) (1,675)
Adjusted EBITDA $5,183 $1,511 $13,860 $ 6,643
NOTE 4: Supplemental information related to the company's adjusted EBITDA
for the three and twelve months ended December 28, 2008 and
December 30, 2007 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 Q1 2009 Net Income
(Loss) Range to Forecasted
Q1 2009 Adjusted EBITDA Range
Range Calculated As: Three Months Ended
March 29, 2009
(In thousands, unless otherwise indicated) Range High Range Low
Net income (loss) $- $(2,000)
Amortization of intangible assets 200 200
Stock-based compensation 1,650 1,650
Depreciation 3,275 3,275
Interest income, net (125) (125)
Adjusted EBITDA $5,000 $3,000
SUPPLEMENTAL INFORMATION: Reconciliation of Net Cash Provided by Operating
Activities to Free Cash Flow:
(In thousands, Three Months Ended Twelve Months Ended
unless December 28, December 30, December 28, December 30,
otherwise indicated) 2008 2007 2008 2007
Net cash provided by
operating activities $3,606 $746 $9,913 $7,778
Add: Proceeds from sale
of discontinued
operations 3,964 - 3,964 -
Less: Purchases of
fixed assets (2,134) (3,466) (13,197) (14,249)
Free Cash Flow $5,436 $(2,720) $680 $(6,471)
drugstore.com, inc.
Consolidated Balance Sheets
(in thousands, except share data)
December 28, December 30,
2008 2007
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $25,197 $18,572
Marketable securities 12,997 17,677
Accounts receivable, net of allowances 9,108 10,999
Inventories 32,704 31,237
Other current assets 2,128 3,642
Assets of discontinued operations 5,954 30,763
Total current assets 88,088 112,890
Fixed assets, net 28,306 25,501
Other intangible assets, net 3,731 4,598
Goodwill 32,202 32,202
Prepaid marketing expenses and other 222 217
Total assets $152,549 $175,408
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,208 $36,446
Accrued compensation 4,416 4,657
Accrued marketing expenses 4,630 3,988
Other current liabilities 4,560 4,312
Current portion of long-term debt 2,998 3,179
Liabilities of discontinued operations 5,946 24,968
Total current liabilities 53,758 77,550
Long-term debt, less current portion 2,567 1,221
Deferred income taxes 953 947
Other long-term liabilities 1,071 1,322
Stockholders' equity:
Common stock, $.0001 par value,
stated at amounts paid in:
Authorized shares - 250,000,000
Issued and outstanding shares -
99,474,079 and 96,296,687
as of December 28, 2008 and
December 30, 2007, respectively 864,282 856,193
Accumulated other comprehensive income 57 27
Accumulated deficit (770,139) (761,852)
Total stockholders' equity 94,200 94,368
Total liabilities and stockholders' equity $152,549 $175,408
drugstore.com, inc.
Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended Twelve Months Ended
December 28, December 30, December 28, December 30,
2008 2007 2008 2007
(unaudited)
Operating activities:
Net income (loss) $289 $(2,344) $(8,287) $(11,511)
Adjustments to
reconcile net income
(loss) to net cash
provided by
operating activities:
Depreciation 3,017 1,761 10,912 7,504
Amortization of
intangible assets 206 244 867 1,234
Stock-based
compensation 1,786 1,687 7,564 8,801
Other, net (16) 2 (59) 14
Changes in:
Accounts receivable 1,902 (2,092) 1,891 (337)
Inventories (1,965) (9,150) (1,467) (5,155)
Prepaid marketing
expenses and other 1,055 62 1,514 (929)
Accounts payable,
accrued expenses
and other
liabilities (1,931) 10,297 (4,845) 6,359
Net cash provided
by (used in)
activities of
discontinued
operations (737) 279 1,823 1,798
Net cash provided by
operating activities 3,606 746 9,913 7,778
Investing activities:
Purchases of marketable
securities (3,810) (11,004) (46,926) (27,544)
Sales and maturities
of marketable
securities 2,001 21,316 51,705 37,141
Proceeds from sale
of discontinued
operations 3,964 - 3,964 -
Purchases of fixed
assets (2,134) (3,466) (13,197) (14,249)
Purchases of
intangible assets - - - (456)
Net cash provided by
(used in) investing
activities 21 6,846 (4,454) (5,108)
Financing activities:
Proceeds from exercise
of stock options
and employee
stock purchase plan - 985 525 4,366
Proceeds from line
of credit - 3,700 5,000 4,000
Principal payments on
line of credit, capital
lease and term loan
obligations (802) (3,667) (4,359) (5,857)
Net cash (used in)
provided by financing
activities (802) 1,018 1,166 2,509
Net increase in cash
and cash
equivalents 2,825 8,610 6,625 5,179
Cash and cash
equivalents,
beginning of
period 22,372 9,962 18,572 13,393
Cash and cash
equivalents, end of
period $25,197 $18,572 $25,197 $18,572
SOURCE drugstore.com, inc.
http://www.drugstore.com/
Copyright (C) 2009 PR Newswire. All rights reserved