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Duane Reade takes positive but cautious outlook

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NEW YORK — Despite a rise in sales and improved earnings in the third quarter, Duane Reade Inc. tempered its outlook for fiscal 2009.

In reporting quarterly results on Tuesday, the drug store chain shaved its retail sales forecast for the year to between $1.758 billion and $1.765 billion from its projection of $1.760 billion to $1.785 billion in late July. The company attributed the change mainly to the timing of new store openings.

Still, the retail sales projection would represent an increase of 4% to 4.4% from the fiscal 2008 total of $1.690 billion, which represented a 4.1% gain from the previous year.

Duane Reade also tweaked its fiscal 2009 guidance for same-store sales, raising its outlook for the pharmacy while trimming its estimate for the front end.

The retailer said it now expects overall same-store sales to grow 1.1% to 2.1% in 2009, compared with its earlier forecast of 0.5% to 2.2%. Last year, total same-store sales rose 4.2%.

In the pharmacy, same-store results are projected to rise 4% to 5% for 2009, up from the previous estimate of 2% to 3.5%. But in the front end of the store, same-store revenue is expected to range from flat to a 1% decrease, compared with prior guidance of a 1% increase to a 1% decline.

And on the earnings side, Duane Reade reaffirmed its earlier guidance for 2009 adjusted FIFO EBITDA of $93 million to $98 million. The company also raised the projected net loss to between $52 million and $57 million, compared with $50.5 million to $55.5 million previously, due primarily to higher closed-store costs included within other expenses.

"We remain cautiously optimistic about our prospects for growth as we look ahead to the end of the year, and we remain on track to achieve our expectations for adjusted FIFO EBITDA," chairman and chief executive officer John Lederer commented.

"Further, we are delighted to have completed our debt refinancing in August and are pleased that the transactions provided us with financial flexibility and access to long-term capital to move forward with the ongoing transformation of our business," Lederer stated. 

Duane Reade said the transactions resulted in a $12.5 million gain on the extinguishment of debt and that the refinancing "significantly improves the company’s financial flexibility and liquidity, reduces leverage and provides long-term capital support for its ongoing business transformation."

At the close of the third quarter, Duane Reade’s total debt stood at $464.7 million, down $90.9 million from the balance at the end of fiscal 2008, and availability under its asset-based revolving loan facility was about $107.1 million.


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