Duane Reade reports increased sales, narrows quarterly loss

NEW YORK Duane Reade announced on Thursday that fourth-quarter sales rose more than 4 percent as it narrowed its quarterly loss thanks to improvements in gross margin and selling, general and administrative expenses.

Total net sales for the quarter increased 4.1 percent to $431.6 million compared with last year. Net retail store sales, which exclude pharmacy resale activity, increased 4.4 percent to $414.6 million. Total same-store sales for the quarter rose 5.7 percent, while pharmacy same-store sales increased 3.3 percent. Front-end same-store sales increased 7.5 percent thanks to strong sales of food and beverages, OTC products and health and beauty care items.

Gross margin during the quarter increased to 30.7 percent from 30.1 percent in the year-ago period, driven by higher selling margins resulting from improvements in front-end merchandising, increased pharmacy margins related to higher rates of generic utilization and a reduced LIFO charge. As a percentage of sales, SG&A expenses declined 25.4 percent from 26 percent in the prior year due to improved leveraging of costs on higher sales, reduced ad costs and lower legal and professional fees.

Net loss for the quarter totaled $15.1 million compared with a net loss of $29.7 million in the year-ago period.

For the full year, total net sales were $1.687 billion, up 6.4 percent compared with the year-ago period. Net retail store sales for the year rose 6.1 percent to $1.623 billion. Total same-store sales increased 7.4 percent, while front-end same-store sales increased 8.6 percent. Pharmacy same-store sales rose 5.9 percent.

Net loss, which included a prior-year recognition of one-time labor contingency income, for the year was $87.8 million compared with a net loss of $79.4 million in 2006. Excluding the prior year’s labor contingency income, net loss improved by $9.6 million due to improved gross margin and better leveraging of operating expenses.

“We are optimistic and excited about our prospects for growth and continued positive momentum in 2008. Our strong and talented team has solidly positioned our company to maximize the opportunities that lay ahead of us as New York’s leading drug store,” stated David D’Arezzo, interim chief executive officer and chief marketing officer. “We remain confident in our ability to maintain and expand our leadership position in the years to come.”

For 2008, the company, which currently has 242 stores, expects to open 15 new locations. Net loss is expected to range between $58.3 million and $63.3 million, with net retail store sales, excluding pharmacy resale activity, expected to range between $1.720 billion and $1.736 billion.

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