Drugstore.com grows sales 5% while narrowing loss

Drugstore.com Inc. reached record quarterly sales of $109.8 million in the first quarter, up 5.4% from $104.1 million a year ago, the company reports. It experienced a net loss of $3.8 million, a 29% improvement from $5.3 million the same period of 2006.

The company reported: • Over-the-counter product net sales grew by 15% to $56.3 million.
• Mail-order pharmacy net sales were down 26% to $13.5 million, while contribution margin dollars increased by 23%.
• Local pick-up pharmacy net sales (Drugstore.com has an arrangement with Rite-Aid for pick-up) were up approximately 9% to $26.5 million.
• Vision net sales grew approximately 8% to $13.6 million.
• Average net sales per order were $74. Average net sales per order were flat for OTC at $56, up by 4% to $161 for mail-order pharmacy, down 5% to $105 for local pick-up pharmacy, and up by 11% to $96 for vision.
• Net sales from repeat customers represented 82% of net sales.

Drugstore.com, a web-only merchant that ranks No. 32 in the Internet Retailer Top 500 Guide, also reported that it has served 8.8 million customers since inception and that is acquired 338,000 new customers in the first quarter. The number of active customers, that is, those who have made at least one purchase in the last 12 months, grew by 9% to 2.3 million. The average annual spend per active customer was $184.

“We continue to execute on plan, delivering a record number of orders, expanding gross margins and posting positive adjusted EBITDA (earnings before interest, taxes and depreciation allowances),” says Dawn Lepore, CEO and chairman. “Our OTC segment is the key driver in our business making up 51% of sales, with sales from Beauty.com growing 40% year-over-year.”

LePopre says the company took steps to expand its OTC business with a drop-ship program that it launched April 16 that added 400 OTC products to its offerings. It expects that to grow to 4,000 by the end of the year.

“Our first quarter was on track with our strategic plan to make targeted investments that will enhance our ability to expand our margins and drive continued bottom-line improvements,” Lepore says. “We expect these initiatives to result in accelerated OTC growth leading to a break-out fourth quarter, and position us to significantly expand EBITDA in 2008.”

The drop ship program, whereby manufacturers or suppliers house inventory and fulfill orders, also allowed Drugstore.com to extend its product offerings into baby gear; games, including board games, electronic games and interactive CDs; durable medical equipment; fitness equipment; kitchen accessories and small appliances; specialty electronics, such as air purifiers and weather stations; and gourmet food and gift baskets.

“We are delighted to give our customers access to a wider variety of products through the launch of drop ship,” Lepore says. “This is a win for customers and for the company because we can significantly expand our OTC product selection without taking on new inventory risk.”

Drugstore.com executives Luke Friang, vice president and CIO, and David Lonczak, vice president of marketing, are speaking at the Internet Retailer Conference & Exhibition, June 4-7 in San Jose in a session entitled How to Prioritize Your Technology investments. http://www.internetretailer.com/IR2007/Sessions/session7.asp