Duane Reade forges ahead with store transformation

5/5/2009

NEW YORK Duane Reade’s chairman and CEO John Lederer expressed cautious optimism during its first-quarter conference call with analysts on Tuesday as the company forges ahead with its transformation initiative amid a rough economy.

As previously reported by Drug Store News, the Manhattan-based pharmacy retailer is in the midst of transforming its store base using consumer research it compiled last year as the underpinnings for the go-forth strategy.

Duane Reade is rebranding its stores and has a new brand mantra, “Duane Reade equals New York living made easy,” to articulate its desire to become the destination of choice for beauty, wellness and convenience needs. These core offerings are supported by a new concept segmentation that is sub-branded: “How I look, how I feel and what I need now.” In addition, the company recently revamped its Web site to reflect the company’s new look and feel.

While Lederer acknowledges that the economic environment remains challenging, the results appear to be paying off as adjusted EBITDA rose 7.8% to $19.7 million, same-store sales rose 1.1%, and gross margins continued to expand.

“It was a period in which there were significant external challenges; however, in light of these challenges and weakened consumer demand we continued to perform well and continued the positive momentum of our business,“ Lederer told analysts.

Net retail store sales rose 2.8% to $426.7 million from $414.9 million in the year-ago period. Total net sales rose 4.1% to $444.5 million. Total same-store sales rose by 1.1% as front-end same-store sales, which were negatively impacted by a shift in the Easter holiday, decreased 0.8%.

Pharmacy-same-store sales rose 3.5%.

Net loss improved 18% to $17.2 million from $21 million.

Gross margin on net retail sales, which excludes pharmacy resale activity, increased 32.2% from 32% in the year-ago period, reflecting higher front-end selling margins resulting from an improved mix of higher margin categories includes of private label products and reduced inventory shrink losses.

In addition to addressing the quarter’s financials results and reaffirming its previously announced 2009 cost savings plan of $7 million to $10 million, Lederer also discussed plans to open a new 14,000-sq.-ft. store in Manhattan’s Herald Square during the summer.

“I bring that [store] to your attention because it is in the middle of Midtown and it has some incredible traffic counts. It is in a very hustle and bustle area and we are going to show some new innovation in that store in terms of categories and we are going to show the consumer where this brand is headed,” said Lederer.

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