Amid a Shakeout, Drugstore.com Releases Financial Results

Drugstore.com Monday released smaller-than-expected losses for its fourth quarter on a healthy 95-percent jump in sales but the online retailer may be quietly experiencing the same woes as others in its space.

The company said net sales for the fourth quarter were $36.2 million, representing a more
than 95 percent increase over the fourth quarter of 1999.

The company reported a fourth-quarter gross profit of $5.2 million compared to a loss of $3 million in the fourth quarter of 1999. The company reported a pro forma net loss for the fourth quarter of $28.6 million, or 45 cents per share, beating the 55-cent estimate that analysts were expected.

“Despite all the doom and gloom, our increases in revenues and gross
margins during the fourth quarter confirm the company’s ability to earn
customer confidence and loyalty,” said Peter Neupert, drugstore.com
president and CEO. “Drugstore.com is well positioned for high-quality,
sustainable growth.”

But Monday’s announcement follows word late Friday that Drugstore.com was eliminating 125 positions. The company went on to admit that it expects its first quarter net sales to range from approximately $30 million to $31 million. It also anticipates that first quarter losses will range from $25 million to $26 million.

For fiscal year 2001, drugstore.com expects to reduce overall planned operating expenses by an additional $20 million while keeping its net sales targets unchanged at $135 million to $145 million. Losses before interest, taxes and amortization will range from approximately $83 million to $88 million. The company anticipates 2001 gross margins will continue to improve, ranging from 14 percent to 16 percent.

The $20 million cost reductions will come primarily through the reduction
of marketing and administrative expenses, and the 20 percent reduction in
headcount.

“We’ve proven in the last six months that we can spend less, yet continue to
grow the business without compromising the level of service we deliver to
our customers,” said Neupert. “Agility has always been a hallmark of our
culture, and we remain incredibly focused on delivering a great service at a
great value for our customers.”

Shares of drugstore.com , which jumped earlier this month on optimism that it could be the e-commerce trend, was trading at $2 9/32, down 13 percent.

Meanwhile, the company said it added 257,000 new customers in the fourth quarter,
while orders from repeat customers were 62 percent of total orders in the
quarter.

Average revenue per order was $54, up from $38 in the fourth quarter of
1999. The company reported a pro forma net loss for the fourth quarter
(excluding amortization of intangible assets and amortization of stock-based
compensation) of $28.6 million, or $.45 per share.

For fiscal year 2000, drugstore.com reported a gross profit of $9.3
million, or 8.4 percent of net sales, as compared to a loss of $8.5 million
or negative 24.3 percent of net sales in fiscal year 1999. The company
reported a pro forma net loss for 2000 (excluding amortization of intangible
assets and amortization of stock-based compensation) of $143.1 million, or
$2.64 per share.

The company ended fourth quarter 2000 with approximately $130 million in
cash, cash equivalents and marketable securities. Total cash used for fourth
quarter 2000 was $17.2 million, a significant improvement over prior
periods.

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