Drugstore.com registers loss but beats estimates

The online retailer reports a smaller-than-expected fourth-quarter loss and foresees reaching the break-even point in cash flow in 2004.

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Shares of online retailer Drugstore.com faltered Monday after the company reported a smaller-than-expected fourth-quarter loss.

The Bellevue, Wash.-based company's stock sunk about 10 percent in early trading Monday, down 25 cents at $2.38. The company said earlier this month that it would beat estimates for the quarter.

Like those of many Internet retailers, Drugstore shares have been rattled as investors have bailed on unproven, unprofitable companies. On Friday, the company announced the departure of its chief financial officer, Bob Barton, along with another round of job cuts. The layoffs and other cost-saving moves are expected to reduce 2001 operating expenses by more than $20 million.

For the fourth quarter ended Dec. 31, the company reported a pro forma net loss, excluding amortization of intangible assets and amortization of stock-based compensation, of $28.6 million, or 45 cents a share. First Call's analyst consensus was for a loss of 55 cents a share for the period.

The pro forma net loss shrunk from 84 cents a share in the year-ago period.

Net sales for the fourth quarter were $36.2 million, up 95 percent from the $18.5 million pocketed in the fourth quarter of 1999.

Including charges, the company lost $43.1 million, or 68 cents a share, down from the $1.02 per share a year earlier.

Gross margins for the quarter were 14.5 percent, down from 16.3 percent in the fourth quarter of 1999.

In its outlook for the first quarter, the company sees net sales of between $30 million and $31 million. The first-quarter loss, before interest, taxes and amortization, is projected to be between $25 million and $26 million. The company also said that gross margins will remain in line with the 14.5 percent seen in the fourth quarter.

The company said it has $130 million in cash and securities in its coffers, enough--under this latest cost-cutting plan--to reach the break-even point in cash flow, an achievement that executives expect in 2004.

On a conference call, Chief Executive Peter Neupert said he remains confident in the position of the company, despite a slowing economy and a tough e-business climate. He also said he expects the company to add 200,000 customers in the upcoming quarter, even though it has reduced its marketing and sales budgets.

The company said it added 257,000 new customers in the fourth quarter, with repeat customers making up 62 percent of total orders.

For fiscal 2000, Drugstore.com's net sales totaled $110 million, up from $34 million in the previous year. The pro forma net loss for the period was $143.1 million, or $2.64 a share, slightly better than the Street's estimate of a loss of $2.78 a share.