Drugstore.com sees record performance across a number of key indicators

BELLEVUE, Wash. Drugstore.com on Monday afternoon reported quarterly net sales of $107.3 million and a net loss of $2.4 million, or $0.02 per share, for the third quarter ended September 30, 2007.

The company achieved record performance across a number of key financial metrics—gross margins reached 23.2 percent, adjusted EBITDA was approximately $2.1 million and operating cash flow was $4.4 million.

“In the seasonally challenging third quarter, we continued to grow our OTC business, reported strong gross margin improvement and record adjusted EBITDA,” stated Dawn Lepore, chief executive officer and chairman of drugstore.com. “OTC revenues increased by 20 percent year-over-year with a number of our key growth initiatives rolling out later in the quarter. Gross margins increased 170 basis points year-over-year leading to record adjusted EBITDA of $2.1 million, an improvement of over 57 percent from the same period in the prior year,” she said.

“Over the last six months we have focused on growing OTC revenues and improving operational efficiencies to set the stage for a break-out fourth quarter—our strongest seasonal period. In the fourth quarter, we expect adjusted EBITDA to more than double sequentially and believe that this positive momentum will continue throughout 2008,” Lepore added.

For example, drugstore.com has already realized an uptick in drop ship sales—drop shipments was added to the company’s repertoire in April—with the roll-out of Halloween costumes.

And also earlier this year, drugstore.com migrated to an offering of several alternative payment options, including Bill Me Later, Google Checkout and PayPal, which now accounts for almost 10 percent of the company’s OTC business. “Most importantly, the re-launch of our Beauty.com website with a more personalized, up-close shopping experience has led to a significant increase in traffic and orders. Based on this, we expect Beauty.com year-over-year growth of more than 50 percent in the fourth quarter,” Lepore concluded.

For the fourth quarter of 2007, the company is targeting net sales in the range of $120 million to $125 million, net loss of $0.5 million to net income of $0.5 million, and adjusted EBITDA in the range of $4.2 million to $5.2 million.

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