drugstore.com inc. Reports Results for the First Quarter of 2008

Tuesday, May 6, 2008 General News
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BELLEVUE, Wash., May 5 drugstore.com, inc.(Nasdaq: DSCM), a leading online provider of health, beauty, vision, andpharmacy products, today announced its financial results for the first quarterended March 30, 2008. The company reported record quarterly net sales of$120.6 million, up 10% year-over-year and driven by over-the-counter (OTC)order growth, and a net loss of $2.7 million, or $0.03 per share. The companyachieved strong gross margins of 24.0% and positive adjusted EBITDA of$2.0 million, an improvement of approximately $900,000 from the first quarterof 2007. Adjusted EBITDA is a non-GAAP financial measure defined as earningsbefore interest, taxes, depreciation, and amortization of intangible assetsand non-cash marketing expense, adjusted to exclude the impact of stock-basedcompensation expense.

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"The first quarter of 2008 demonstrates that we are executing on ourstrategy -- delivering core OTC (1) sales growth of 15.5%, growing Beauty.com38% year-over-year while expanding overall gross margins by 150 basis pointsyear-over-year," said Dawn Lepore, chief executive officer and chairman of theboard of drugstore.com, inc. "We believe our revenue growth was ahead ofcurrent ecommerce trends in OTC and prestige beauty, offering evidence that wecan drive growth even in a tougher economic environment without sacrificingmargin. Additionally, we are pleased with the benefits we are seeing from ourimproved operational efficiencies and grew contribution margin dollars 22%year-over-year, exceeding $20.0 million for the first time in company history.Based on growing sales and expanding margins, we reported positive adjustedEBITDA that almost doubled from the first quarter of 2007, despite investingover $1.3 million on our profitability initiatives."

"Beauty.com remains key to our strategy and since the beginning of theyear, we have added a record 31 new prestige brands compared to 50 brands inall of fiscal 2007. Profitability remains our top priority and we willcontinue to drive margin expansion and improve operational efficienciesthroughout 2008- targeting to exit the year with gross margins above 26%,adjusted EBITDA margins between 5-6% and GAAP profitability for the fullyear," concluded Ms. Lepore.

The Company also announced today that chief financial officer, There duPont will be resigning to run a private foundation effective May 29.Mr. du Pont will continue as a consultant for the company until the end ofAugust. To replace Mr. du Pont, drugstore.com is promoting two seniorfinancial executives effective May 29, 2008 -- Rob Potter, current VicePresident, Chief Accountant, will be Vice President, Chief Accounting Officerand Tracy Wright, current Vice President of Financial Planning and Analysis,will be Vice President, Chief Finance Officer.

"Rob and Tracy have each been with drugstore.com over four years and havestepped up to spearhead the finance team," explained Ms. Lepore. "They shareover 34 years of combined corporate finance experience and I feel veryconfident that they are the right team to lead our finance organization. Wehave also recently hired Jon Axelsson from Wawa, Inc. who brings over 20 yearsof experience in warehousing and transportation operations, to take overThere's operational responsibilities and to continue to drive marginimprovement. Jon has an impressive background from Wawa, Federal Express,UPS, and QVC, and will serve as Senior Director of Operations. We thank Therefor his contributions and wish him success in his new role."

GAAP net loss for the first quarter of 2008 was $2.7 million, or $0.03 pershare, compared to a net loss of $3.8 million, or $0.04 per share, for thefirst quarter of 2007. The first quarter losses include $2.1 million and$2.4 million, in non-cash stock-based compensation expense for 2008 and 2007,respectivel

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