Drugstore.com reports record gross margins as Q3 sales hit $107 million
Net sales at Drugstore.com Inc. rose 6.6% year-over-year to $107.3 million for the third quarter ended Sept. 30, as net loss narrowed 8.4% to $2.4 million, the e-retailer said. It also reported a record high gross profit margin of 23.2%, up from 21.5%, resulting in the retailer’s strongest-ever EBITDA of $2.1 million, up 57% from a year ago; and it reported record cash flow from operations of $4.4 million, up from $1.9 million a year ago. EBITDA, or earnings before interest, taxes, depreciation and amortization, is a non-GAAP measure used to indicate a company’s core performance and ability to make a profit.
Dawn Lepore, chairman and CEO of the web-only pharmacy retailer, attributes much of Drugstore’s Q3 financial performance to over-the-counter non-prescription sales, which rose 20% year-over-year to $54.6 million from $45.6 million, along with increased efficiencies in over-the-counter operations. “Over the last six months, we have focused on growing OTC revenues and improving operational efficiencies,” she says.
Among those efficiencies are increases in orders drop-shipped to customers by suppliers and in alternative payment methods available to customers, Lepore says. “We have seen an uptick in drop-ship sales with the roll-out of Halloween costumes, demonstrating that we can drive seasonal drop-ship products,” she says. Lepore adds that in nearly 10% of over-the-counter transactions in recent weeks, customers opted to use one of three alternatives to credit cards—Bill Me Later, Google Checkout and PayPal—resulting in lower payment-processing costs.
Lepore also cites the recent re-launch of Beauty.com, Drugstore’s beauty products site, as producing a “significant” increase in traffic and orders. “We expected Beauty.com year-over-year growth of more than 50% in the fourth quarter,” she says.
Other Q3 growth occurred within Drugstore’s vision products category, where sales rose 17% to $14.9 million, and in sales of pharmacy items ordered online at Drugstore.com for pick-up at fulfillment partner Rite Aid Corp.’s Rite Aid stores, which rose 5% to $26.4 million.
But mail-order pharmacy sales of products ordered online or via phone for shipment to customer addresses fell 33% to $11.5 million from $17.2 million.
Drugstore, No. 35 in the Internet Retailer Top 500 Guide, also reported overall average net sales per order of $75 in Q3. For over-the-counter sales, average order size was $57; for vision products, $101; pick-up at Rite Aid stores, $106; and mail-order pharmacy, $151. It said repeat customers accounted for 82% of net sales, and that it acquired 326,000 new customers in the quarter, up 15% from Q2.
Lepore said she expects net sales overall to improve sharply in the fourth quarter year-over-year. “Although I’m pleased with our record metrics, I’m not satisfied with our top line,” she said in a conference call with analysts yesterday. Lepore added that she expects the fourth quarter to produce net sales in the range of $120 million to $125 million, up 10-15% from $108.6 million in last year’s Q4. She said she also expects earnings within a range of a net loss of $0.5 million to net income of $0.5 million, compared to a net loss of $2.9 million in Q4 of last year.
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