Duane Reade Holdings, Inc. Reports Second Quarter Results

Tuesday, August 14, 2007 General News
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NEW YORK, Aug. 14 Duane Reade Holdings, Inc.today reported financial results for the second quarter ended June 30, 2007.

Richard W. Dreiling, Chairman, President and Chief Executive Officer,commented, "We are very pleased with the strong operating performance achievedduring the second quarter and in particular with our record front-end andindustry leading comp store growth. This growth is especially gratifying asthe increase follows record front-end comp store growth of 7.3% for thecomparable quarter a year ago. Further, quarter after quarter, we are seeingthe tangible benefits of our initiatives in merchandising and customerservice, as well as the other components of our Full Potential program, whichare together driving improvements in our overall financial performance.

Net retail store sales, which exclude pharmacy resale activity, increased7.1% to $416.3 million from $388.8 million in the second quarter of 2006.Total net sales increased 8.3% to $431.9 million from $398.8 million in thesecond quarter of 2006. Total same-store sales increased by 7.9%, with afront-end same-store sales increase of 9.4% and a pharmacy same-store salesincrease of 6.1%. During the second quarter, the Company did not open any newstores and closed one store. At the end of the second quarter, the Companyoperated 244 stores, compared to 247 stores in the previous year.

Front-end sales continued to show significant increases in the conveniencefood, health and wellness categories as well as in cosmetics and certainbeauty items. The Dollar Rewards customer loyalty program also continued togrow in average transaction value, frequency of use and number of activecardholders. Pharmacy sales growth was strong despite a significant increasein the generic dispensing rate to 54.7% from 50.9% last year. The increaseduse of lower priced but more profitable generic medications adversely impactedthe pharmacy same-store sales growth percentage by 3.1%.

Gross margin for the second quarter increased to 21.1% from 20.3% lastyear and reflected a continuation of the improved trend of front-end marginsexhibited over the last several quarters partially offset by reduced pharmacymargins resulting from increased penetration of lower margin Medicare Part Dsales combined with reductions in Medicaid reimbursement rates that went intoeffect in July 2006. Selling, general and administrative expenses as apercentage of net sales improved to 17.0% from 17.1% in the previous year dueto improved leveraging of costs against the strong sales growth. Excludingresales of pharmaceutical merchandise, selling, general and administrativeexpenses represented 17.6% of net retail sales, as compared to 17.5% in theprior year.

The above factors resulted in a 33.0% increase in Adjusted FIFO EBITDA, asdefined on the attached schedule of preliminary operating data, to $21.6million, or 5.0% of sales, from $16.2 million, or 4.1% of sales in last year'ssecond quarter.

Net loss for the quarter was $20.1 million, compared to a net loss of$21.1 million in the prior year period. The current year's second quarterresults included $4.2 million of other expenses, including $1.8 million incosts related to the previously disclosed and completed accountinginvestigation, $1.4 million in connection with the Company's former CEO, and$0.7 million of closed store costs. The previous year's second quarter resultsincluded other expenses of $0.5 million of which, there were virtually noexpenses incurred in connection with the Company's former CEO. A breakdown ofother expenses is shown on Table 6 of this press release.

Total debt at quarter end was $560.6 million, reflecting a decrease of$11.8 million from the balance at the end of fiscal 2006. Availability underthe Company's revolving credit facility at quarter end was approximately $67.5million. The increased availability from the $53.1 million availabl

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