drugstore.com Reports Record Fourth Quarter and Full Year 2010 Revenues

/ Source: GlobeNewswire

BELLEVUE, Wash., Feb. 8, 2011 (GLOBE NEWSWIRE) -- drugstore.com, inc. (Nasdaq:DSCM), a leading online retailer of health, beauty, clinical skincare, and vision products, today announced its financial results for the fourth quarter and fiscal year ended January 2, 2011.

In the fourth quarter of 2010, drugstore.com's quarterly net sales increased to $123.6 million, up 23%1 on an adjusted growth rate from $108.6 million in the prior year period. The Company reported a net loss of $663,000 and a net loss per share of $0.01. This is an improvement from a net loss of $1.6 million and a net loss per share of $0.02 reported in the same period of the prior year.

The Company reported $5.0 million of adjusted EBITDA and $4.2 million of ongoing adjusted EBITDA in the fourth quarter of 2010, as compared to $3.5 million of adjusted EBITDA and $4.2 million of ongoing adjusted EBITDA for the same period of the prior year. Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, and amortization of intangible assets, adjusted to exclude the impact of stock-based compensation expense. Ongoing adjusted EBITDA, also a non-GAAP financial measure, is defined as adjusted EBITDA excluding the impact of expenses or income from discontinued operations, certain legal actions, settlements and related costs outside our normal course of business, restructuring and severance costs, impairment charges, and certain other one-time charges and credits each of which is specifically identified.

For the fiscal year 2010, the Company reported net sales of $456.5 million, up 24%1 on an adjusted basis over fiscal year 2009. The Company reported a net loss of $3.6 million in 2010, adjusted EBITDA of $20.0 million, and ongoing adjusted EBITDA of $16.3 million for 2010. Additionally, the Company reported free cash flow of $4.4 million for 2010 compared to $1.4 million for 2009.

"We are pleased with our revenue growth in the fourth quarter in a highly competitive environment, as our holiday sales outpaced eCommerce growth for the quarter," said Dawn Lepore, chief executive officer and chairman of the board of drugstore.com, inc. "While gross margins were impacted by product mix and holiday promotions, total orders excluding partnerships increased over 17%1 from the prior year period. For the quarter, we reported OTC sales up 24%1, as adjusted, including a strong performance from SkinStore.com, which contributed to total beauty growth of 56%1, as adjusted. Additionally, this quarter, we accelerated the growth of our vision business, up 14%1 on a comparable basis over the prior year period, and recently launched two branded sites, PearleVision Contacts and LensCraftersContacts, for Luxottica."

"During 2010, we made important strategic progress, achieving our targets for OTC and total beauty growth, and, even more importantly, laying the groundwork to deliver significant growth to both our top and bottom lines. Through the sale of our pharmacy assets to BioScrip Pharmacy Services and the acquisition of SkinStore.com, we have refocused the business on our faster growing OTC and vision segments and have a clear plan of how to succeed in these markets. I am confident that the improvements we have made to our site, the extensive testing we conducted on new product offerings, and the important investments we made this year position us for a strong 2011," concluded Ms. Lepore.

Outlook for First Quarter of 2011

For the first quarter of 2011, the Company is targeting net sales in the range of $123.0 million to $126.0 million, net loss in the range of $700,000 to $2.5 million, adjusted EBITDA in the range of $2.7 million to $4.3 million, and ongoing adjusted EBITDA in the range of $2.0 million to $3.5 million. 

Financial and Operational Highlights for the Fourth Quarter of 2010

(All comparisons are made to the fourth quarter of 2009 and reflect the reporting of the mail-order pharmacy businesses as discontinued operations. All net sales, order and customer growth rates are adjusted to take into account the extra week in fiscal year 2009 as described in footnote 1, unless otherwise noted.)

Key Financial Highlights:

  • Total contribution margin dollars increased by 4% to $25.4 million.
  • Total orders, excluding partnership orders, grew by 17%1 to 1.7 million (9% unadjusted) and contribution margin dollars per order were approximately $14.
  • Gross margins were 28.5%.
  • Cash provided by operations during the quarter was $4.3 million, a $2.1 million improvement from the prior year period.
  • Cash, cash equivalents, and marketable securities were $33.5 million at quarter end.

Net Sales Summary:

  • Total net sales increased 23%1 to $123.6 million (14% unadjusted).
  • OTC net sales grew 24%1 to $106.2 million (15% unadjusted), with total beauty growth, including Salu, Inc., of 56%1 and Beauty.com growth of approximately 10%1 (45% and 2% unadjusted).
  • Vision net sales were up 14%1 to $17.4 million (6% unadjusted).
  • Average net sales per order increased to $66. Average net sales per order for OTC increased approximately 7% year-over-year to $62, and for Vision average net sales per order were $121.
  • Net sales from repeat customers represented 69% of net sales.

Key Customer Milestones:

  • We served approximately 533,000 new customers, excluding our strategic partnerships, during the quarter, up 15%1 (7% unadjusted) over the same period in the prior year.
  • Marketing and sales expense per new customer was $22.50.

Conference Call

Investors, analysts, and other interested parties are invited to join the drugstore.com, inc. quarterly conference call on February 8, 2011 at 5:00 p.m. ET (2:00 p.m. PT). To participate, callers should dial 1-877-941-8418 (international callers should dial 1-480-629-9809) five minutes beforehand. Investors may also listen to the conference call live and view the financial slides at , by clicking on the "audio" hyperlink. A replay of the call will be available through February 13, 2011 at 11:59 p.m. ET (8:59 p.m. PT) by dialing 800-406-7325and enter passcode 4379012# and international parties should call 1-303-590-3030 and enter passcode 4402511# 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, adjusted to exclude the impact of stock-based compensation expense. The Company also uses the non-GAAP measure of ongoing adjusted EBITDA, defined as adjusted EBITDA excluding the impact of expenses or income from discontinued operations, certain legal actions, settlements and related costs outside our normal course of business, restructuring and severance costs, impairment charges, and certain other one-time charges and credits specifically identified in the non-GAAP reconciliation included with the financial schedules in this release. These non-GAAP measures are provided to enhance the user's overall understanding of the Company's current financial performance. Management believes that adjusted EBITDA and ongoing 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 and ongoing adjusted EBITDA measures to investors, management believes that including adjusted EBITDA and ongoing adjusted EBITDA measures provides consistency in the Company's financial reporting. However, adjusted EBITDA and ongoing 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 and ongoing 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 and ongoing adjusted EBITDA. A reconciliation of adjusted EBITDA and ongoing 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 plus proceeds from the sale of discontinued operations 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.

The Company also uses the non-GAAP measure of core OTC, defined as sales generated through our OTC segment less sales generated through our partnerships with Medco Health Solutions, Inc. and Rite Aid Corporation. This non-GAAP measure is provided to enhance the user's overall understanding of the Company's financial performance in the OTC segment, excluding the partnerships. Management believes that this reporting metric provides useful information to the Company and to investors by providing the Company's core operating results in the OTC segment without the impact of the partnerships. By excluding partnership 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. However, this non-GAAP measure 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 partnership sales.

About drugstore.com, inc.

drugstore.com, inc. (Nasdaq:DSCM) is a leading online retailer of health, beauty, clinical skincare, and vision products. Our portfolio of brands includes: drugstore.com™, Beauty.com™, SkinStore.com™, and VisionDirect.com™. All provide a convenient, private, and informative shopping experience, while offering a wide assortment of more than 55,000 non-prescription products at competitive prices.

The drugstore.com pharmacy service, in association with BioScrip Pharmacy Services, Inc., is certified by the National Association of Boards of Pharmacy (NABP) as a Verified Internet Pharmacy Practice Site (VIPPS) and complies with federal and state laws and regulations in the United States.

The drugstore.com, inc. logo is available at  

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 "will," "target," "believe," "may," "plan," "expectations," 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: the risk that anticipated synergies and opportunities as a result of the Salu transaction or the benefits of our BioScrip arrangement will not be realized; difficulty or unanticipated expenses in connection with integrating Salu into drugstore.com or integrating our systems with BioScrip's; the risk that any new or acquired business(es) does not perform as planned; effects of changes in the economy; changes in consumer spending and consumer trends; 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, 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; the level of competition; seasonality; the timing and success of expansion efforts; changes in senior management; risks related to systems interruptions; possible changes in governmental regulation; possible increases in the price of fuel used in the transportation of packages, or other energy products; and the Company's ability to manage multiple growing businesses. 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.

1 drugstore.com, inc. operates on a 52/53-week retail calendar year, with each quarter in a 52-week fiscal year representing a 13-week period. Fiscal year 2009 was a 53-week fiscal year, with the fourth quarter representing a 14-week period, while fiscal year 2010 was a 52-week fiscal year, with the fourth quarter representing a 13-week period. The extra week in the fourth quarter of 2009 affects year-over-year comparisons for both the fourth quarter and full year. To make results comparable on a 52-week basis for the purpose of presenting growth rates, each fourth quarter 2009 result presented here for which the Company presents a growth rate comparison has been multiplied by a fraction of 13/14, and each full year growth rate has been computed by multiplying the full year 2009 result by a fraction of 52/53.

CONTACT: Investor Relations: Brinlea Johnson 212-551-1453 brinlea@blueshirtgroup.com