Longs profitable despite slow flu season

WALNUT CREEK, Calif. Despite a slow flu season on the West Coast and a weak economy affecting front-end sales, Longs Drugs reported another profitable quarter and expects to stay on course with expansion plans for fiscal 2009.

The 510-store chain reported a 38 percent increase in fourth-quarter income of $37.8 million and an 11 percent jump in total sales of $1.45 billion. For the full year, Longs reported net income of $98.9 million, compared to $79.5 million last year and total sales of $5.26 billion, up 5.8 percent over last year. Longs chief executive officer Warren Bryant said the results show the chain continues to “make progress in becoming a stronger, more consolidated and more profitable company.”

Several trends affected fourth-quarter sales and a few of them may continue into 2008. Same-store sales dropped 0.6 percent during the quarter ended Jan. 31, with pharmacy sales rising 0.7 percent and front-end sales falling 1.7 percent. Sluggish pharmacy sales were affected by the continued increase in generic drug prescriptions and a slow flu season in California, Longs’ biggest market.

“The flu season was mild and well below national trends and we don’t expect that to change the rest of the year,” said Bryant.

On the positive side, Longs pharmacy benefit services continue to grow at a rapid clip and even resulted in the opening of two new stores in Arizona.

Revenues for its RX America PBM increased 42 percent for the fourth quarter to $21.2 million while prescription drug plans for Medicare generated $87.9 million in sales compared to $64.3 million last year. Bryant said RX America recorded “a strong year of growth with prospects for another strong year” in fiscal 2009. PBM revenues for the full year nearly doubled to $68.9 million compared to $39.6 million the previous year.

He added that Longs opened two stores in Arizona last year to support a new client in that state but does not plan to add any more stores there. “We added two stores in Arizona to service that contract,” said Bryant, noting that the previous PBM provider supported the service with two stores there.

On the front end, the 1.7 percent fourth-quarter decline was attributed in part to a weaker economy that affected sales across all retail channels. But that weakness is expected to be offset by Longs ability to self-distribute nearly all its front-end merchandise and by what Bryant said are plans to “implement a new demand forecast and delivery system” for the front-end in 2008.

For the coming year, Longs plans open or relocate 20 to 30 stores “in multiple formats” and remodel up to 40 older stores. Longs expects same-store sales to jump 1 percent to 3 percent for the year.

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