- Company Delivers Record Quarterly Net Revenues and Strong Gross Margins of 24%, Up 130 Basis Points Year-Over-Year - Beauty.com Increases Over 45% and Vision Business Grows 15% Year-Over-Year
BELLEVUE, Wash., July 31 /PRNewswire-FirstCall/ -- drugstore.com, inc.
(Nasdaq: DSCM), a leading online provider of health, beauty, vision, and
pharmacy products, today announced its financial results for the second
quarter ended June 29, 2008. The company reported record quarterly net sales
of $122.8 million, up 11% year-over-year driven by over-the-counter (OTC)
order growth, and a net loss of $2.3 million, or $0.02 per share. The company
achieved strong gross margins of 24.0%, up 130 basis points over the prior
year period, and adjusted EBITDA of over $3.0 million. 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 less purchases of fixed assets, including capitalized
internally developed software and website development costs.
(Logo: http://www.newscom.com/cgi-bin/prnh/20070813/AQM043LOGO)
"We delivered a strong second quarter, posting record quarterly revenues
and adjusted EBITDA, generating significant free cash flow," said Dawn Lepore,
chief executive officer and chairman of the board of drugstore.com, inc. "Our
OTC revenue growth was in-line with ecommerce trends and we are encouraged by
the strong performance of our Beauty.com sales, which grew 45% year-over-year.
This quarter we continued to drive margin expansion and realized the benefits
from our profitability investments as gross margins improved 130 basis points
over the prior year period to 24% and adjusted EBITDA improved by 51%
sequentially to surpass $3.0 million. Both our strong quarterly revenues and
continued progress in improving our current business model enabled us to
generate significant free cash flow of $1.3 million and we expect to continue
to be cash flow positive on an ongoing basis."
"The second quarter reinforces our strategy as we are focused on what we
do best -- growing our leading health, beauty and vision platform while
improving the bottom line. We will continue to drive OTC growth by leveraging
our strong capabilities in internet marketing, merchandising, fulfillment and
customer care in the health, beauty and wellness arena. Consistent with our
strategy, we are targeting key partnerships that will drive additional
traffic, orders and customers. We recently announced a new partnership with
E4X to allow us to expand our OTC store internationally and gain access to an
entirely new market of 500 million customers in 34 countries. Additionally,
we are progressing in our discussions with Rite Aid and we have identified and
are actively pursuing other partnership opportunities," concluded Ms. Lepore.
GAAP net loss for the second quarter of 2008 was $2.3 million, or $0.02
per share, compared to a net loss of $3.0 million, or $0.03 per share, for the
second quarter of 2007. The second quarter 2008 losses include $1.1 million
related to consulting services and $1.8 million, in non-cash stock-based
compensation expense, compared to $2.5 million for 2007.
Outlook for Third Quarter 2008
For the third quarter of 2008, the company is targeting net sales in the
range of $118.0 million to $122.0 million, net loss in the range of $1.0
million to $2.0 million, and adjusted EBITDA in the range of $3.5 million to
$4.5 million. Third quarter adjusted EBITDA guidance includes $800,000 in
consulting services associated with profitability initiatives, which will
continue to improve margins throughout the remainder of 2008.
Financial and Operational Highlights for the Second Quarter of 2008
(All comparisons are made to the second quarter of 2007)
Key Financial Highlights:
-- Gross margins for the quarter increased 130 basis points to 24.0%.
-- Total contribution margin dollars increased by over 20% for the
quarter and exceeded $20.7 million the highest in company history.
-- Total orders grew by 9% to 1.6 million, while contribution margin
dollars per order grew almost 10% to approximately $13.
-- Cash, cash equivalents and marketable securities were $35.2 million at
quarter end.
Net Sales Summary:
-- Core OTC [1] revenues grew by 13% to $64.5 million in the quarter.
OTC net sales grew by approximately 13% to $64.9 million.
-- Vision net sales grew approximately 15% to $15.9 million.
-- Local pick-up pharmacy net sales were up 14.6% to $30.5 million.
-- Mail-order pharmacy net sales decreased to $11.5 million, while
contribution margins dollars increased 20%.
-- Average net sales per order were $76 for the quarter. Average net
sales per order were up to $58 for OTC, grew approximately 12% to
$111 for vision, and were $108 for local pick-up pharmacy and $161
for mail-order pharmacy.
-- Net sales from repeat customers [2] represented 81% of net sales.
Key Customer Milestones:
-- We served approximately 382,000 new customers during the quarter, up
approximately 12% over the same period in the prior year.
-- We have now served nearly 10.6 million customers since inception.
-- The number of active customers [3] was 2.6 million, up 12% year over
year.
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. Prior to December 31, 2005,
all CNS sales were recognized on a gross basis, net of promotional
discounts, cancellations, rebates and returns allowances. Under the
terms of the company's December 31, 2005 fulfillment agreement with
Weil Lifestyle, LLC (Weil), the company recognizes on a net basis
the revenue associated with the fulfillment of customized vitamins
sold through its fulfillment agreement with Weil. 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 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
and its subsidiaries.
Conference Call
Investors, analysts, and other interested parties are invited to join the
drugstore.com, inc. quarterly conference call on July 31, 2008 at 5:00 p.m. ET
(2:00 p.m. PT). To participate, callers should dial 800-257-3401
(international callers should dial 303-262-2075) 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 Monday, August 4, 2008 by dialing
800-405-2236 (enter pass code 11117369#) or internationally at 303-590-3000
(enter pass code 11117369#) 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 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
30,000 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," "expect," "believe," "may,"
"will," "focus," "continue," "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, 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.
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 Six Months Ended
June 29, July 1, June 29, July 1,
2008 2007 2008 2007
Net sales $122,787 $110,412 $243,424 $220,177
Costs and expenses:
(1)(2)
Cost of sales 93,308 85,317 185,031 170,379
Fulfillment and order
processing 12,184 10,656 24,334 21,630
Marketing and sales8,8217,872 17,707 15,961
Technology and content 5,7364,475 10,9399,190
General and
administrative4,9005,157 10,2949,866
Amortization of
intangible assets 210 306 455 750
Total costs and
expenses 125,159 113,783 248,760 227,776
Operating loss (2,372) (3,371) (5,336) (7,599)
Interest income, net 100 356 379 806
Net loss $(2,272) $(3,015) $(4,957) $(6,793)
Basic and diluted net
loss per share $(0.02) $(0.03) $(0.05) $(0.07)
Weighted average shares
used in computation of:
Basic and diluted
net loss per
share96,478,573 95,006,512 96,435,655 94,753,321
(1) Set forth below are the amounts of stock-based compensation by
operating function recorded in the Statements of Operations:
Fulfillment and
order processing $ 103 $186 $288 $461
Marketing and sales 417 372 732 786
Technology and content 246 285 604 643
General and
administrative1,0821,6932,3083,077
$1,848 $2,536 $3,932 $4,967
(2) Set forth below are the amounts of depreciation by operating function
recorded in the Statements of Operations:
Fulfillment and
order processing $ 686 $457 $1,144 $920
Marketing and sales1122
Technology and content 1,9761,3473,4812,670
General and
administrative 113 106 225 210
$2,776 $1,911 $4,852 $3,802
SUPPLEMENTAL INFORMATION: Gross Profit and Gross Margin Information:
Three Months Ended Six Months Ended
(In thousands, unless June 29,July 1, June 29, July 1,
otherwise indicated)2008 2007 2008 2007
Net sales $122,787 $110,412 $243,424 $220,177
Cost of sales 93,308 85,317 185,031 170,379
Gross profit $ 29,479 $ 25,095 $58,393 $49,798
Gross margin 24.0%22.7%24.0%22.6%
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 Six Months Ended
June 29, July 1, June 29, July 1,
2008 2007 2008 2007
(In thousands)
Over-the-Counter (OTC):
Net sales $ 64,911 $ 57,527$ 129,762$ 113,789
CNS460 482 936 984
Core OTC net sales $ 64,451 $ 57,045$ 128,826$ 112,805
Cost of sales $ 45,099 $ 40,810 $90,112 $80,461
CNS 55 15 92 41
Core OTC cost of
sales $ 45,044 $ 40,795 $90,020 $80,420
Gross profit19,812 16,717 39,650 33,328
CNS405 467 844 943
Core OTC gross
profit $ 19,407 $ 16,250 $38,806 $32,385
Gross margin 30.5%29.1%30.6%29.3%
CNS 88.0%96.9%90.2%95.8%
Core OTC gross margin 30.1%28.5%30.1%28.7%
Variable order costs$5,869 $5,180 $11,834 $10,548
CNS143 154 282 325
Core OTC variable
order costs $5,726 $5,026 $11,552 $10,223
Contribution margin 13,943 11,537 27,816 22,780
CNS262 313 562 618
Core OTC contribution
margin $ 13,681 $ 11,224 $27,254 $22,162
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 six months ended June 29, 2008 and
July 1, 2007 is presented for informational purposes only and is not
prepared in accordance with generally accepted accounting principles. On
December 31, 2005, we entered into a fulfillment agreement with Weil
Lifestyles, LLC, resulting in Weil-related CNS net sales (which make up
the substantial majority of CNS net sales) being recorded on a net basis
after that date. All CNS sales were previously recorded on a gross basis.
SUPPLEMENTAL INFORMATION: Segment Information:
Three Months Ended Six Months Ended
June 29, July 1, June 29, July 1,
2008 2007 2008 2007
Net sales:
OTC$64,911 $57,527 $129,762 $113,789
Vision 15,850 13,795 31,286 27,347
Mail-order pharmacy 11,487 12,451 23,768 25,929
Local pick-up pharmacy 30,539 26,639 58,608 53,112
$122,787 $110,412 $243,424 $220,177
Cost of sales:
OTC$45,099 $40,810 $90,112 $80,461
Vision 12,238 10,475 24,266 20,971
Mail-order pharmacy 9,342 10,466 19,484 21,779
Local pick-up pharmacy 26,629 23,566 51,169 47,168
$93,308$85,317 $185,031 $170,379
Gross profit:
OTC 19,812 16,717 39,650 33,328
Vision 3,6123,3207,0206,376
Mail-order pharmacy 2,1451,9854,2844,150
Local pick-up pharmacy 3,9103,0737,4395,944
$29,479$25,095 $58,393 $49,798
Gross margin:
OTC 30.5%29.1%30.6%29.3%
Vision22.8%24.1%22.4%23.3%
Mail-order pharmacy 18.7%15.9%18.0%16.0%
Local pick-up pharmacy12.8%11.5%12.7%11.2%
24.0%22.7%24.0%22.6%
Variable order costs:
OTC $5,869 $5,180 $11,834 $10,548
Vision 747 6511,4901,298
Mail-order pharmacy904 9521,8332,073
Local pick-up pharmacy 1,2381,1012,3882,189
8,7587,884 17,545 16,108
Contribution margin:
OTC$13,943 $11,537 $27,816 $22,780
Vision 2,8652,6695,5305,078
Mail-order pharmacy 1,2411,0332,4512,077
Local pick-up pharmacy 2,6721,9725,0513,755
$20,721 $17,211 $40,848 $33,690
SUPPLEMENTAL INFORMATION: Reconciliation of Net Loss to Adjusted EBITDA
(See Note 4 below):
Three Months Ended Six Months Ended
(In thousands, unless June 29, July 1, June 29, July 1,
otherwise indicated)2008 2007 2008 2007
Net loss $(2,272) $(3,015) $(4,957) $(6,793)
Amortization of
intangible assets 210 306 455 750
Amortization of non-
cash marketing572 5731,1451,145
Stock-based compensation 1,8482,5363,9324,967
Depreciation 2,7761,9114,8523,802
Interest income, net (100)(356)(379)(806)
Adjusted EBITDA $3,034 $1,955 $5,048 $ 3,065
NOTE 4: Supplemental information related to the company's adjusted EBITDA
for the three and six months ended June 29, 2008 and July 1, 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 Q3 2008 and FY 2008
Net Income (Loss) Range to Forecasted
Q3 2008 and FY 2008 Adjusted EBITDA Range
Range Calculated As:Three Months EndedTwelve Months Ended
(In thousands, unless September 28, 2008December 28, 2008
otherwise indicated) Range HighRange LowRange High Range Low
Net income (loss) $(1,000) $(2,000) $ 1,000 $(3,000)
Amortization of
intangible assets 210 210 900 900
Amortization of non-
cash marketing575 5752,3002,300
Stock-based compensation 1,9001,9007,1007,100
Depreciation 2,9502,950 10,150 10,150
Interest income, net (135)(135) (1,450) (1,450)
Adjusted EBITDA $4,500 $3,500 $20,000 $16,000
SUPPLEMENTAL INFORMATION: Reconciliation of Net Cash Provided by Operating
Activities to Free Cash Flow:
Three Months Ended Six Months Ended
(In thousands, unless June 29, July 1, June 29, July 1,
otherwise indicated)2008 2007 2008 2007
Net cash provided by
operating activities $4,233 $3,097 $ 4,400 $ 2,592
Purchases of fixed
assets (2,934) (2,954) (8,116) (5,130)
Free Cash Flow $1,299 $143 $(3,716) $(2,538)
drugstore.com, inc.
Consolidated Balance Sheets
(in thousands, except share data)
June 29, December 30,
2008 2007
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 16,315$18,572
Marketable securities 18,931 17,677
Accounts receivable, net of allowances 41,706 38,063
Inventories 31,465 31,501
Prepaid marketing expenses 2,302 2,327
Other current assets 2,834 3,605
Total current assets 113,553111,745
Fixed assets, net 29,147 25,501
Other intangible assets, net 4,143 4,598
Goodwill 32,202 32,202
Prepaid marketing expenses and other 222 1,362
Total assets$179,267 $175,408
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 62,892$61,414
Accrued compensation 4,913 4,657
Accrued marketing expenses 4,004 3,988
Other current liabilities4,362 4,312
Current portion of long-term debt3,048 3,179
Total current liabilities 79,219 77,550
Long-term debt, less current portion 4,016 1,221
Deferred income taxes950947
Other long-term liabilities1,326 1,322
Stockholders' equity:
Common stock, $.0001 par value, stated at
amounts paid in:
Authorized shares - 250,000,000
Issued and outstanding shares - 96,478,573
and 96,296,687 as of June 29, 2008 and
December 30, 2007, respectively 860,548856,193
Accumulated other comprehensive income17 27
Accumulated deficit (766,809) (761,852)
Total stockholders' equity93,756 94,368
Total liabilities and stockholders'
equity $179,267 $175,408
drugstore.com, inc.
Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended Six Months Ended
June 29, July 1, June 29, July 1,
2008 2007 2008 2007
(unaudited)
Operating activities:
Net loss $(2,272) $(3,015) $(4,957) $(6,793)
Adjustments to
reconcile net loss
to net cash provided
by operating
activities:
Depreciation 2,7761,9114,8523,802
Amortization of
marketing and sales
agreements572 5731,1451,145
Amortization of
intangible assets 210 306 455 750
Stock-based
compensation1,8482,5363,9324,967
Other, net (9) (6) (15) (6)
Changes in:
Accounts
receivable (2,851) 748 (3,643) 426
Inventories (1,438) 391 361,040
Prepaid marketing
expenses and other 595 343 796 (225)
Accounts payable,
accrued expenses
and other
liabilities 4,802 (690) 1,799 (2,514)
Net cash provided
by operating
activities 4,2333,0974,4002,592
Investing activities:
Purchases of
marketable
securities (20,560) (11,955) (35,344) (19,101)
Sales and maturities
of marketable
securities 15,660 10,690 34,098 18,465
Purchases of fixed
assets (2,934) (2,954) (8,116) (5,130)
Net cash used in
investing
activities (7,834) (4,219) (9,362) (5,766)
Financing activities:
Proceeds from exercise
of stock options
and employee stock
purchase plan -1,270 4231,933
Proceeds from line
of credit, term loan
and asset financings --3,500 300
Principal payments on
line of credit,
capital lease and
term loan obligations (732)(718) (1,218) (1,395)
Net cash (used in)
provided by
financing
activities (732) 5522,705 838
Net decrease in
cash and cash
equivalents (4,333)(570) (2,257) (2,336)
Cash and cash
equivalents,
beginning of
period 20,648 11,627 18,572 13,393
Cash and cash
equivalents,
end of period $ 16,315 $11,057 $16,315 $11,057
SOURCE drugstore.com, inc.
