Duane Reade profits hurt by higher taxes.
Net income at the drug chain declined 14.2% to $6.23 million over the 13 weeks ended September 23 from $7.26 million in the corresponding period a year earlier. Results in the current year reflect a full tax rate of 43.2%, while utilization of tax loss carry-forwards pared the 1999 rate of 19%. Had prior-year earnings been taxed at the full rate, earnings for the 13 weeks would have grown 29.2% from $4.8 million in the 1999 period.
Sales for the period rose 15.1% to $243 million from $211.1 million. Same-store volume was ahead 6.5%, reflecting 19.1% growth behind the pharmacy counter and 0.5% at the front end. During last year's third quarter comparable-store sales advanced at a 9% pace. Overall, pharmacy sales rose 27.3%, representing 35.6% of total volume, up from 32.2% in the 1999 quarter.
During the nine months Duane Reade's net decreased 9% to $13.1 million from $14.4 million in 1999. However, assuming an equal tax rate in both years, earnings would have escalated 42.4% from $9.2 million in the 1999 span.
Sales during the nine months improved 16.8% to $712.8 million from $610.1 million. Same-store volume was up 7.3% overall, with pharmacy and front-end merchandise producing respective gains of 19.7% and 1.4%. Prescription sales advanced 30.1% in total.
On an operating basis, income climbed 19.6% in the third quarter to $20 million. Gross margins held steady at 26.6%, aided by sales of lower-cost forward-buy merchandise, as well as the Dollar Rewards club card program that was introduced in the fourth quarter last year. Those factors were countered by a higher proportion of low-margin prescription sales.
On the expense side, selling, general and administrative (SG&A) costs dropped 0.2 point to 15.7% of sales. The improvement stemmed from store labor efficiencies and additional expense leveraging against new store sales.
With interest expenses up 16.6% to $9.01 million, pretax profits increased 22.2% to $11 million.
Earnings before interest, taxes, depreciation, amortization and other noncash items (EBITDA) increased 15.4% to $27.3 million, or 11.3% of sales. Nine month operating profits grew 23.7% to $48.8 million. Gross margins dipped 0.1 point to 25.2%, while SG&A costs decreased 0.4 point to 15.7% of sales.
Pretax profits expanded 28.1% to $22.7 million, as interest expenses rose 20.1% to $26 million.
Nine month EBITDA grew 21.6% to $70.5 million, or 9.9% of sales, versus $58 million, or 9.5% of sales, in the fiscal 1999 span.
"We are pleased that pharmacy same-store sales continued to increase at industry-leading levels and that, together with improved front-end margins and tight expense controls, we achieved record third quarter and nine month fully taxed earnings," remarks chairman and chief executive officer Tony Cuti. "Furthermore, with improved weather since Labor Day, front-end sales growth has normalized and is on track with expectations. With the new store program adding between 22 and 24 stores this year, Duane Reade should achieve its targeted expectations in the fourth quarter."
During the quarter the retailer completed the acquisition of five Value Drug outlets in Manhattan, opened seven units and closed one location to bring its total to 166 stores. A year earlier the chain operated 145 outlets.
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|Comment:||Duane Reade profits hurt by higher taxes.|
|Publication:||Chain Drug Review|
|Article Type:||Brief Article|
|Date:||Nov 20, 2000|
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