Beauty drives Duane Reade turnaround

9/10/2007

NEW YORK

Duane Reade’s turnaround plan appears to be gaining traction, especially at the front end where cosmetics and beauty items are helping to drive solid growth. During the second quarter ended June 30 the pharmacy retailer posted record front-end same-store sales growth of 9.4 percent, driven in part by strong sales of cosmetics and certain beauty items.

“Our beauty category is actually outgrowing the same-store sales rate in the chain and the margin is also performing better than it was last year,” Duane Reade chairman, president and chief executive officer Rick Dreiling told analysts during a conference call in August to discuss second-quarter results.

To further bolster the front end and strengthen its position as a beauty destination among trendy New Yorkers, the company has been executing new cosmetic sets and introducing new skin care planograms.

As part of the effort, Duane Reade is working to bring in some exclusive European beauty brands and has opted to discontinue its private label apt. 5 cosmetics line, Dreiling told Drug Store News in an interview earlier this year.

Dreiling told analysts that the company is on track to implement in the back half of the year about 30 skin care centers. It currently has four skin care centers.

“We are continuing to fine-tune the mix. The mix is significantly better than it was last year. We are looking in more of the natural area and in the ethnic area, and we are well on our way,” said Dreiling. He noted that the size of the beauty department has not changed as it works to revamp stores, but the “commitment to the different vendors is changing based on the mix that they have to offer that fits the mix we are trying to put in the store.”

In other company news, Dreiling confirmed during the call with analysts that the company is continuing its work on a new prototype. Dreiling declined to disclose specifics, but did say that the company is currently conducting research and will likely have more details later this year.

Meanwhile, Duane Reade continues to work toward enhancing customer service and in-stocks, and has launched a 24/7 pharmacy hotline where patients can get information on medication therapy.

During the quarter, pharmacy same-store sales increased 6.1 percent. Total same-store sales increased 7.9 percent. Total net sales rose 8.3 percent to $431.9 million from $398.8 million in the year-ago period. Net loss for the quarter narrowed to $20.1 million compared with a loss in the year-ago period of $21.1 million.

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