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

BY Michael Johnsen

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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Rite Aid-sponsored walk raises more than $600,000 for diabetes association

BY Michael Johnsen

PHILADELPHIA More than $600,000 was raised for the American Diabetes Association Saturday as men and women from across the country climbed more than 1,000 stairs and walked 10 miles throughout Philadelphia in the first Step Up to Fight Diabetes fund-raising challenge that was sponsored by Rite Aid. The Step Up event raised mondy for research, education and advocacy efforts of the association.

During Step Up, participants went on a “climbing tour” of Philadelphia beginning at Temple University’s Liacouras Center and ending at the well-known Philadelphia Museum of Art—running up those steps was immortalized by Sylvester Stallone in the film Rocky.

“Diabetes is the fastest-growing disease in America and the incidence of the disease is four percent higher in Philadelphia than the national average,” stated American Diabetes Association chief executive officer Larry Hausner. “Our hope is that Step Up can spread awareness about diabetes and raise money for a cure.”

Other Step Up to Fight Diabetes sponsors included Merck, AstraZeneca and the Temple University Health System Transport Team.

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Spartan announces plans for acquired Felpausch stores

BY Allison Cerra

GRAND RAPIDS, Mich. Spartan Stores is focusing on integrating its newly acquired Felpausch grocery stores into its network during the second half of its 2008 fiscal year.

Spartan expects the Hastings-based, 20-store Felpausch acquisition in June to add about $85 million in sales during the fiscal year. About $4 million to $5 million will be spent, with five store remodelings during the next two quarters.

During last week’s conference call, which discussed the company’s second quarter earnings, officials told analysts that they plan to spend $1.5 million to $2 million for merchandise changes, store remodeling and employee training in its third and fourth quarters.

Spartan, known as the country’s 10th-largest grocery distributor, with close to 400 independent grocery stores as customers in Michigan, Indiana and Ohio, also owns 88 grocery stores in Michigan and 14 drug stores in Ohio, including Family Fare Supermarkets, D&W Fresh Markets, Glen’s Markets, Felpausch Food Centers and The Pharm.

Spartan plans to renovate the stores and rename them either Family Fare or D&W, depending on market demographics.

Spartan reported that its net sales for the quarter reached a six-year high, with $627.1 million, or a 13.5 percent increase over the $552.6 million for the same time period last year.

Net earnings for the second quarter reached $9.1 million, or 42 cents per share, compared to $9.3 million, or 44 cents per share last year.

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