Medindia LOGIN REGISTER
Medindia
Advertisement

Duane Reade Holdings, Inc. Reports Fourth Quarter and Full Year 2008 Results

Friday, October 16, 2009 General News
Advertisement
~ Fourth Quarter Adjusted FIFO EBITDA Increases 4.3% to $26.1 Million, Excluding a Previously Announced $3.5 Million Litigation Settlement Charge ~

~ Full Year Adjusted FIFO EBITDA Increases 15% to $90.5 Million, Excluding $3.5 Million Settlement Charge ~
Advertisement

~ Full Year Net Cash Provided by Operating Activities Increases 130% to $44.3 Million ~

~ Fourth Quarter Net Loss of $17.4 Million and Full Year Net Loss of $72.8 Million ~
Advertisement

NEW YORK, March 10 /PRNewswire/ -- Duane Reade Holdings, Inc. today reported financial results for the fourth quarter and year ended December 27, 2008.

Fourth Quarter Key Highlights

Full Year Key Highlights

John A. Lederer, Chairman and Chief Executive Officer, commented, "We are pleased with our results for the fourth quarter and full year, as we continued to show growth in a number of our key metrics despite the significant challenges posed by the external environment. We achieved our annual Adjusted FIFO EBITDA guidance, excluding the litigation settlement charge, with strong sales and margin performance. During 2008 we began implementing the components of our transformational strategy and made significant progress on a number of important fronts, including strengthening our management team, improved merchandising, and executed new store concepts and designs in several of our locations."

Fourth Quarter Results

Total net sales increased 7.6% to $464.5 million from $431.6 million in the fourth quarter of 2007. Net retail store sales, which exclude pharmacy resale activity, increased 3.4% to $428.6 million from $414.6 million in the fourth quarter of 2007. Total same-store sales increased by 2.4%, with a front-end same-store sales increase of 1.5% and a pharmacy same-store sales increase of 3.6%. During the fourth quarter, the Company opened six new stores. At the end of 2008, the Company operated 251 stores, compared to 242 stores at the end of 2007.

Total front-end sales increased 3.1% over the prior year period with strong performance in food and beverages, over-the-counter products and daily needs categories. The front-end same-store sales increase was positively impacted by approximately 0.2% due to the switch of Zyrtec, a prescription allergy medication, to over-the-counter status. Additionally, in June 2008, the Company raised the sales price on its cigarettes commensurate with an increase in cigarette excise taxes in New York State. Although such additional sales do not result in any additional profit to the Company, the increase in the sales price on cigarettes positively impacted front-end same-store sales by 1.1%. The pharmacy retail sales growth of 3.8% was attributable to a strong same-store sales performance and increases in average prescription prices. The aforementioned switch of Zyrtec to over-the-counter status negatively impacted pharmacy same-store sales by approximately 0.5%. The percentage of generic drugs dispensed increased by 2.8% over the prior year. Generic drugs typically sell at lower prices but yield higher margins and profitability than branded drugs. The higher proportion of generics adversely impacted the pharmacy same-store sales increase by approximately 3.1%.

Gross margin for the fourth quarter declined to 30.1% from 30.7% in the fourth quarter of 2007, due to a $1.8 million increase in the LIFO charge and an increased proportion of lower margin pharmacy resale activity. FIFO gross margin on net retail sales, which excludes the LIFO charge and pharmacy resale activity, increased to 33.0% from 31.9% in the prior year period, reflecting the impact of improved front-end selling margins and reductions in the level of inventory shrink losses. Selling, general and administrative expenses as a percentage of net sales was 26.3% compared to 25.4% in the previous year and was adversely impacted in the current period by the $3.5 million litigation settlement charge associated with two class action lawsuits. Excluding the litigation settlement charge, selling, general and administrative expenses as a percentage of net sales during the current period was 25.6% compared with 25.4% for the previous year.

The fourth quarter operating loss was $3.6 million as compared to operating income of $1.2 million in the prior year period. The fourth quarter 2008 operating loss included the $3.5 million litigation settlement charge and an increase in other expenses of $2.2 million, primarily attributable to non-cash asset impairment charges of $4.3 million and higher closed store costs. These factors more than offset certain fair value adjustments that reduced the phantom stock and profits interest liabilities and a $2.3 million decrease in depreciation and amortization expense due primarily to certain intangible assets becoming fully amortized. A detailed breakdown of other expenses compared to the previous year is provided on Table 6 of this press release. Excluding the litigation settlement charge, the operating loss for the fourth quarter of 2008 was $0.1 million.

The fourth quarter interest expense decreased by $2.2 million compared to the prior year period. The reduction in interest expense was primarily due to lower interest rates on the Company's variable rate borrowings as compared to the prior year and lower outstanding borrowings on the revolving credit facility. Net loss for the fourth quarter of 2008 was $17.4 million, compared to $15.1 million in the prior year period.

Adjusted FIFO EBITDA, as defined on the attached schedule of operating data, was $22.6 million for the fourth quarter of 2008, compared to $25.0 million in the prior year period. Excluding the above mentioned litigation settlement charge of $3.5 million, fourth quarter Adjusted FIFO EBITDA increased 4.3% to $26.1 million.

During the fourth quarter of 2008, the Company's net cash provided by operating activities was $23.6 million compared to $23.1 million in the prior year period.

Full Year Results

For the full year, total net sales were $1.774 billion, reflecting an increase of 5.2% compared to $1.687 billion in 2007. Net retail store sales increased 4.1% to $1.690 billion, from $1.623 billion in the prior year. Total same-store sales increased 4.2%, with a front-end same-store sales increase of 5.0% and a pharmacy same-store sales increase of 3.1%.

Total front-end sales increased 5.1% over the prior year due to improved merchandise offerings and the strong performance in the food and beverage categories, over-the-counter products and health and beauty items. The front-end same-store sales increase was positively impacted by approximately 0.3% in 2008 due to the aforementioned switch of Zyrtec to over-the-counter status. The June 2008 increase in cigarette excise taxes in New York State positively impacted front-end sales by 0.5%. Total pharmacy sales increased 5.3% over the prior year. Resale activity accounted for 2.7% of the pharmacy sales increase, while pharmacy net retail sales accounted for the remaining 2.6% of the increase. The aforementioned switch of Zyrtec to over-the-counter status negatively impacted pharmacy same-store sales by approximately 0.4% during 2008. The percentage of generic drugs dispensed increased by 3.9% over the prior year. The higher proportion of generics adversely impacted the pharmacy same-store sales increase by approximately 3.7%.

Gross margin increased to 30.8% compared to 30.3% in the prior year and reflects improved front-end selling margins resulting from improved assortments of higher margin products, increased pharmacy margins due to higher rates of generic utilization and reductions in the level of inventory shrink losses. Selling, general and administrative expenses as a percentage of total net sales was 26.9% in 2008 compared to 26.5% in the prior year. Excluding the $3.5 million fourth quarter litigation settlement charge, selling, general and administrative expenses were 26.7% and were adversely impacted in the current year by higher store occupancy costs associated with new stores, reduced real estate income and additional recruitment fees and relocation costs paid in connection with the hiring of senior management executives. These items were partially offset by improved leveraging of costs against strong same-store sales growth in both pharmacy and front-end.

For the full year, operating loss was $15.8 million compared with a $24.6 million operating loss in the prior year. Excluding the $3.5 million litigation settlement charge in 2008, the full year operating loss was $12.3 million. The improvement in operating loss was primarily due to strong same-store sales growth and the improvement in gross margin percentage as well as a $4.5 million reduction in depreciation and amortization expense due primarily to certain intangible assets becoming fully amortized. The operating loss also reflects a $0.9 million increase in other expenses. See Table 6 attached to this press release for a detailed breakdown of other expenses compared to the previous year. The prior year operating loss included a $1.3 million gain from the sale of several pharmacy prescription files, which did not recur in the current year.

Net loss was $72.8 million, compared to $87.8 million in the prior year. The improvement in this measure is attributable to the factors discussed above as well as reduced interest expense of $6.1 million in the current year. The reduction in interest expense was primarily due to lower interest rates on the Company's variable rate borrowings as compared to the prior year and lower outstanding borrowings on the revolving credit facility.

Adjusted FIFO EBITDA, as defined on the attached schedule of operating data was $87.0 million, Excluding the $3.5 million litigation settlement charge, Adjusted FIFO EBITDA increased 15.0% to $90.5 million, or 5.1% of sales, from $78.7 million, or 4.7% of sales, in the prior year period.

At year end, the Company's total debt, including capital leases but excluding the liability associated with the issuance of the redeemable preferred stock, was $555.7 million, reflecting a decrease of $0.2 million from the balance at the end of fiscal 2007. For the full year, net cash provided by operating activities was $44.3 million compared to $19.3 million in the prior year. The increase in net cash provided by operating activities was due to the Company's improved operating results in 2008 and reductions in interest expense. Availability under the Company's revolving credit facility at year end was approximately $69.0 million.

Cost Savings Program and Company Outlook

As a result of the recession, the Company experienced declines in consumer demand that accelerated during the fourth quarter of 2008 and are expected to continue throughout fiscal 2009. Expected higher rates of unemployment, reduced levels of tourism and decreased commercial activity are factors impacting the Company's outlook for the current year. Despite these difficult economic conditions, the Company's management remains confident in its ability to continue to generate long-term growth and improved financial performance. The Company is implementing certain measures to mitigate the impact of these recessionary economic conditions. These actions include hiring and wage freezes in administrative and certain other areas of the business, as well as the implementation of a number of strategic cost savings initiatives to improve efficiency and eliminate non-value added activities. The total cost savings associated with the program is expected to be in the range of $7.0 to $10.0 million in 2009.

In light of current economic conditions and the anticipated impact of the Company's cost savings program, the Company's current expectations for the full year 2009 are as follows:

Mr. Lederer concluded, "We are encouraged by our solid performance in 2008 despite increasingly difficult economic conditions during the latter months of the year. Due to these conditions, we are taking steps to reduce our cost structure in 2009 and will continue to assess the impact of macro factors on our business. That said, we remain cautiously optimistic in our outlook for 2009 as we strive to elevate our offering and act on the opportunities to strengthen and improve our business. Moreover, we remain confident in our ability to create value for our customers and all of our stakeholders over the long-term, as we continue the transformation of our Company in a prudent and methodical manner."

Conference Call Information

The Company will hold a conference call on March 10, 2009 at 10:00 a.m. Eastern Time to discuss financial results for the fourth quarter ended December 27, 2008. A live webcast of the call will be accessible from the Investor Information section of the Duane Reade website (http://www.duanereade.com), and the call will be archived on the website approximately one hour after completion of the call through March 24, 2009. Additionally, a replay of the conference call will be available from approximately 12:00 PM Eastern Time on March 10, 2009 through March 23, 2009. The replay can be accessed by dialing 888-203-1112 (access code 2610424).

About Duane Reade

Founded in 1960, Duane Reade is the largest drug store chain in the metropolitan New York City area, offering a wide variety of prescription and over-the-counter drugs, health and beauty care items, cosmetics, greeting cards, photo supplies and photofinishing. As of December 27, 2008, the Company operated 251 stores.

Except for historical information contained herein, the statements in this release and the accompanying discussion on the earnings conference call are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, this document may contain statements, estimates or projections that constitute "forward-looking" statements as defined under U.S. federal securities laws. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Company's actual results in future periods to differ materially from forecasted or expected results. Those risks include, among other things, the national economic climate, economic conditions and employment levels in the New York greater metropolitan area, the strength of the economy in general, the competitive environment in the drug store industry in general and in the New York metropolitan area, the ability to open and operate new stores, the continued efforts by payers and government agencies to reduce prescription reimbursement rates and prescription drug benefits, changes in federal and state laws and regulations, including the potential impact of changes in regulations surrounding the importation of pharmaceuticals from foreign countries and changes in laws governing minimum wage requirements, changes in the Company's operating strategy, capital expenditure plans or development plans, the Company's ability to attract, hire and retain qualified pharmacy and other personnel, the Company's significant indebtedness, labor disturbances, the continued impact of, or new occurrences of, terrorist attacks in the New York greater metropolitan area and any actions that may be taken in anticipation or response, demographic changes, the Company's ability to limit fraud and inventory shrink, the results of the Company's legal proceedings and recalls of pharmaceutical products due to health concerns or other reasons. Those and other risks are more fully described in Duane Reade's reports filed with the SEC from time to time, including its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. Except to the extent otherwise required by federal securities laws, the Company does not undertake to publicly update or revise any forward-looking statements.

-- Adjusted FIFO EBITDA, excluding the $3.5 million litigation settlement charge, increased 4.3% to $26.1 million from $25.0 million in the fourth quarter of 2007 -- Total same-store sales increased 2.4% with a front-end same-store sales increase of 1.5% and a pharmacy same-store sales increase of 3.6% -- Gross margin was 30.1% and was negatively impacted by a $1.8 million increase in the LIFO charge during the fourth quarter of 2008. FIFO gross margin as a percentage of retail sales increased 115 basis points to 33.0% in the fourth quarter of 2008 -- Excluding the litigation settlement charge, selling, general and administrative expenses as a percentage of sales increased to 25.6% from 25.4% in the prior year period -- Operating loss, excluding the litigation settlement charge, was $0.1 million compared to operating income of $1.2 million in the prior year period -- Net loss was $17.4 million compared to $15.1 million in the previous year -- Net cash provided by operating activities improved to $23.6 million compared to $23.1 million in the prior year

SOURCE Duane Reade Holdings, Inc.
Sponsored Post and Backlink Submission


Latest Press Release on General News

This site uses cookies to deliver our services.By using our site, you acknowledge that you have read and understand our Cookie Policy, Privacy Policy, and our Terms of Use  Ok, Got it. Close