Drugstore.com sales jump 25% in 4Q

Citing strong sales of over-the-counter products and on its Beauty.com site, drugstore.com saw revenue surge 25% for its fiscal 2009 fourth quarter, despite posting a net loss.

BELLEVUE, Wash. — Citing strong sales of over-the-counter products and on its Beauty.com site, drugstore.com saw revenue surge 25% for its fiscal 2009 fourth quarter.

The company said late Tuesday that sales for the quarter ended Jan. 3 totaled $117.4 million, compared with $93.9 million a year earlier. The online retailer noted that gross margins rose 90 basis points year-over-year to a record 29.4%.

Also during the quarter, drugstore.com incurred costs of $1.4 million related to its agreement to acquire Salu Inc. and its SkinStore.com business as well as to its alliance with optical chain operator Luxottica Group.

Including those expenses, the company posted a net loss of $1.6 million, or 2 cents per share, compared with net income of $289,000, or a flat EPS, in the prior-year period. The average forecast for analysts polled by Reuters Estimates was a loss of 2 cents per share for the fiscal 2009 fourth quarter.

Adjusted EBITDA for the quarter came in at $3.5 million, down from $5.2 million a year ago. The 2008 quarter’s adjusted EBITDA and net income results included a $3.1 million contribution from the discontinued local-pick-up (LPU) business, according to the company.

For the 2009 fiscal year, drugstore.com totaled sales of $412.8 million, up 12.6% from $366.6 million a year earlier. The net loss for the year was nearly $1.4 million, or 1 cent per share, compared with a loss of about $8.3 million, or 9 cents per share, in 2008. The average analyst estimate was for a flat EPS in fiscal 2009, according to Reuters Estimates.

Adjusted EBITDA for fiscal 2009 was $17.1 million, and the company reported free cash flow of $1.4 million versus $680,000 in 2008.

The fourth quarter and full-year 2009 periods are based on a 14-week and 53-week fiscal calendar, respectively, and compare with a 13-week fourth quarter and 52-week year in 2008, the company noted.

"We are very pleased with our strong fourth-quarter results, reporting overall net sales growth of 25% and O-T-C net sales growth of 32%, including the positive impact of the 14-week quarter," drugstore.com chairman and chief executive officer Dawn Lepore said in a statement.

"Our growth was driven by strong performance from our core business, including our beauty business on drugstore.com and Beauty.com, along with growing contributions from our partnerships. Our partnerships helped fuel new-customer growth of 49% over the same period last year, while also reducing our marketing cost per new customer to its lowest level in company history," she explained. "Gross margins were a record 29.4% in the fourth quarter, reflecting an increasing mix of higher-margin categories, lower per-order shipping costs and improved pharmacy margins. Driven by record net sales and gross margins, our adjusted EBITDA increased by 65% year over year, excluding the impact of our discontinued LPU business, and by over 125% without the impact of the acquisition and strategic alliance expenses."

"We believe our strong financial results throughout 2009, and the pending acquisition of Skinstore.com, have even more firmly established our company as a clear leader in health and beauty online," Lepore added. "In the coming year, we will further leverage our unique market position and infrastructure, with increasing contributions from Skinstore.com and our key partnerships with Medco and Luxottica. With the continuing ramp-up of these initiatives, we are very optimistic about our growth prospects for 2010."

For the fiscal 2010 first quarter, drugstore.com is projecting net sales of $117 million to $121 million, a net loss of $2.4 million to $3.5 million, and adjusted EBITDA in the range of $2.15 million to $3.25 million.