Lifted in part by robust sales, drugstore.com reported a profit for the third quarter following a year-ago loss.


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Drugstore.com swings to a profit

November 3rd, 2010

BELLEVUE, Wash. – Lifted in part by robust sales, drugstore.com reported a profit for the third quarter following a year-ago loss.

The online retailer said late Tuesday that net income for the third quarter ended Oct. 3 came in at $2.4 million, or 2 cents per share, compared with a net loss of $1.6 million, or a 2-cent loss per share, a year earlier. The company noted that earnings for the 2010 quarter reflect a gain on sale of about $4.7 million from the sale of its mail-order pharmacy business to BioScrip Inc.

Drugstore.com's third-quarter 2010 earnings were in line with the projections of financial analysts, who forecast a profit of 2 cents to 3 cents per share, according to Thomson Financial.

On an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and ongoing adjusted EBITDA basis, the company reported $7.9 million and $3.1 million in the third quarter, respectively, compared with $3 million and $2.3 million, respectively, in the prior-year period.

Sales in the 2010 third quarter surged 23% to $108.8 million from $88.6 million a year ago. Drugstore.com said over-the-counter product sales grew 26% to $90.1 million, with total beauty growth (including Salu Beauty Inc.) of 57% and Beauty.com growth of 5%. Vision net sales climbed 8% to $18.6 million.

The retailer noted that during the quarter it served about 447,000 new customers, excluding strategic partnerships, a 21% rise versus a year earlier. Total orders, including partnership orders, grew by 21% to 1.7 million.

Also in the third quarter, free cash flow came in at $3.3 million, a $4.6 million improvement from a year earlier. However, gross margin dipped to 29.1% from 30.1% in the year-ago quarter. 

"Including a strong performance from SkinStore.com, OTC sales increased 26% year-over-year," Dawn Lepore, chairman and chief executive officer of drugstore.com,said in a statement. "During the quarter, we did experience supply constraints from a few of our major vendors and some softness in discretionary spending, which impacted growth and resulted in increased promotions. Our vision business posted accelerated growth, up 8% both sequentially and year-over-year, and we expect to see further benefits to this business as we launch two branded sites for Luxottica in the coming months.

"With continued growth in our OTC and vision segments, we remain on track to hit our 2010 goals of OTC revenue growth of 24% to 28%, doubling our prestige beauty business and delivering $16 million to $20 million in revenue from our partnerships," she stated.

Lepore added that earlier this year drugstore.com began implementing technology changes to enable multiple distribution centers. "We expect to complete those changes in the first quarter of 2011. This would allow us to have a West Coast facility up and running by midyear," she explained. "Although not needed for capacity reasons, a new distribution center will enable us to better serve our customers, while reducing shipping and labor costs."

For the fourth quarter, drugstore.com forecasts sales of $118 million to $122 million and a net loss in the range of $300,000 to $1.9 million. The company noted that the 2010 fourth quarter is a 13-week period, compared with 14 weeks in 2009.

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