Drugstore Records Strong Q4 on Path to Pure-Play Profit

Riding the coattails of key partner Amazon.com (Nasdaq: AMZN), pure-play e-tailer Drugstore.com (Nasdaq: DSCM) said it saw record sales in the fourth quarter and remains on track to become profitable sometime next year.

“Our fourth-quarter results demonstrate that we can be both a high-growth retailer and drive significant operating improvements,” company CEO Kal Raman said. “In spite of the current economic environment, we have delivered on our promises.”

Although the company did not quantify Amazon’s impact on its sales, Drugstore.com’s sales increases for the year mirrored those recorded by the e-tail giant, which reported its first-ever profit and 15 percent higher sales for the same period.

Drugstore.com has been connected to Amazon since 1999, when Amazon bought a 40 percent stake in the fledgling e-tailer.

Big Brother

Drugstore.com said sales increased 20 percent to US$43.5 million in the last three months of 2001, compared with the year-ago period. The company still lost $14.7 million, or 22 cents per share, but its loss was narrower than the 28 cents per share predicted by Wall Street analysts.

Earlier this month, the company surprised many observers by moving its target date for profits up a year to 2003. That announcement has helped drive up Drugstore.com’s stock price in recent weeks. After dipping below $1 in late September, the stock opened Monday at $3.20.

Important Year

During a conference call, CEO Raman said that in 2002, the company aims to increase sales and improve efficiency, two ingredients necessary for it to become profitable.

“We’re still a growth company,” he said. In fact, Web research firm Jupiter Media Metrix (Nasdaq: JMXI) singled out Drugstore.com as the fastest-growing e-tailer in terms of traffic during the holiday season.

For the year ahead, Drugstore.com is aiming for $200 million in sales and said it hopes to add up to 900,000 new customers, including nearly 200,000 in the first quarter.

Growth is being driven largely by non-prescription sales, though drug sales also are benefiting from a local pickup program run with offline partner Rite Aid, Raman added.

Sharpening Pencils

On the operational side, Drugstore.com said it reduced sales and marketing expenses by 21 percent in the fourth quarter and by 52 percent for the year. Raman said the company plans to use radio advertising and other promotions to help drive traffic this year.

Active customers — those who made at least one purchase in the past year — also are spending more, according to the company, with average revenue per customer increasing to $150 from $50 a year ago.

Drugstore.com said it took a $163 million write-off after reevaluating its partnerships with Rite Aid and the GNC chain. That adjustment was due mainly to changes in Drugstore.com’s stock value since 1999, when the partnerships were formed.