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Longs Drug Stores Corporation Reports First Quarter Results

Posted on: Wednesday, 21 May 2008, 18:00 CDT

WALNUT CREEK, Calif., May 21 /PRNewswire-FirstCall/ -- Longs Drug Stores Corporation today reported preliminary income from continuing operations for the first quarter ended May 1, 2008 of $23.1 million, or $0.63 per diluted share. Income from continuing operations for the first quarter ended April 26, 2007 was $16.0 million, or $0.42 per diluted share, including net charges of $5.5 million after-tax, or $0.14 per diluted share, for the disposition of stores.

Commenting on the quarter, Chairman, President and Chief Executive Officer Warren F. Bryant said, "We are pleased with our increase in earnings. We have continued our focus on executing our strategic initiatives, all of which are designed to improve our operating performance and our competitive position.

"These initiatives are playing an important role now and will do so in the future as we operate in an uncertain economy and as we continue to invest in the growth of our retail store base and in RxAmerica," Bryant said.

During the first quarter, Longs Drugs repurchased one million shares of common stock at an average price of $39.23 per share, for a total investment of $39.3 million. Approximately $117 million remains under the current Board authorization for stock repurchases.

First Quarter Income

Income from continuing operations for the first quarter ended May 1, 2008 was $23.1 million, or $0.63 per diluted share. Income from continuing operations for the first quarter ended April 26, 2007, was $16.0 million, or $0.42 per diluted share, including a $5.5 million after-tax net charge, or $0.14 per diluted share, related to the disposition of stores.

Revenues

Total revenues of $1.41 billion for the thirteen weeks ended May 1, 2008 were 8.5 percent higher than the $1.30 billion reported for the thirteen weeks ended April 26, 2007.

Retail drug store sales increased 2.9 percent to $1.22 billion from $1.19 billion in the comparable period last year. Same-store sales increased 1.0 percent with pharmacy same-store sales increasing 0.5 percent and front-end same-store sales increasing 1.5 percent. Pharmacy sales were 52.4 percent of retail drug store sales during the period, consistent with the comparable period last year.

Pharmacy benefit services revenues increased 67.3 percent to $187.3 million from $112.0 million in the comparable period last year. Prescription drug plan revenues were $167.1 million compared with $96.6 million last year and pharmacy benefit management revenues were $20.2 million compared with $15.4 million a year ago.

Retail Drug Store Gross Profit

Retail drug store gross profit for the first quarter ended May 1, 2008 was $325.2 million, or 26.7 percent of retail drug store sales, compared with $304.0 million, or 25.6 percent of retail drug store sales, last year. The increase in gross profit as a percent of sales was primarily due to higher generic utilization, increased self-distribution of front-end merchandise and improved inventory management.

The LIFO charge for the first quarter ended May 1, 2008 was $3.5 million compared with $3.0 million in the first quarter last year.

Prescription Drug Plan Gross Profit

Prescription drug plan gross profit for the first quarter ended May 1, 2008 was $4.0 million, or 2.4 percent of prescription drug plan revenues, compared with $4.1 million, or 4.2 percent of prescription drug plan revenues, last year. As expected, the lower gross profit margin on increased revenues reflects the Company's bids submitted for the 2008 plan year.

Operating and Administrative Expenses

Operating and administrative expenses for the first quarter ended May 1, 2008 were $309.7 million, or 22.0 percent of revenues, compared with $286.3 million, or 22.1 percent of revenues, last year. The decrease in the expense rate reflects increased leverage on higher revenues.

Operating Income

Consolidated operating income for the first quarter ended May 1, 2008 was $39.5 million, or 2.8 percent of revenues. Operating income for the first quarter last year was $28.0 million, or 2.2 percent of revenues, including a $9.2 million pre-tax charge related to the disposition of stores.

Retail drug store operating income was $35.0 million, or 2.9 percent of retail drug store sales, compared with $23.4 million, or 2.0 percent of sales last year, including the charge related to the disposition of stores. Pharmacy benefit services operating income was $4.5 million, or 2.4 percent of pharmacy benefit services revenues, compared with $4.6 million, or 4.1 percent of pharmacy benefit services revenues last year.

Management Outlook

Management is reiterating its outlook for the 52 weeks ending January 29, 2009. Longs estimates that total revenues will increase 5 to 7 percent and total retail drug store sales will increase 1 to 3 percent compared with the 53 weeks ended January 31, 2008. The Company estimates that same-store sales on a comparable 52-week basis will increase 1 to 3 percent compared with last year. Given these revenue assumptions and the Company's continued progress on previously stated initiatives, Longs' goal is to achieve income from continuing operations of $3.02 to $3.12 per diluted share in Fiscal 2009.

The Company reported Fiscal 2008 income from continuing operations of $2.59 per diluted share, including a net charge of $0.13 per diluted share related to the disposition of stores. The Company estimated that the 53rd week contributed approximately $0.05 per diluted share to income from continuing operations in Fiscal 2008.

In Fiscal 2009, Longs Drugs plans to open or relocate approximately 20 to 30 stores and remodel up to 40 stores. The Company is estimating capital expenditures for Fiscal 2009 to be in the range of $150 million to $200 million.

Teleconference and Webcast

Longs has scheduled a conference call at 4:30 p.m. EDT/1:30 p.m. PDT today to discuss its first quarter performance and business outlook. The call will be broadcast live on the Company's Web Site at http://www.longs.com/; Company Information; Investor relations. A replay of the conference call will be available approximately two hours after the call and available through Wednesday, May 28, 2008 by dialing 412-317-0088 or toll free 877-344-7529 and using the account number 419460 followed by the # sign. The audio Webcast of the conference call will also be archived for one full quarter on the Company's Investor Relations Web Site.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements relate to, among other things, expected financial results for fiscal year 2009 (including revenues, same-store sales and income from continuing operations), growth in income from continuing operations over the next three years, capital expenditures, progress on strategic initiatives, opening, relocating and remodeling of stores, profits from prescription drug plans, performance of RxAmerica, and are indicated by such words as "will,""expects,""estimates,""goals,""plans" or similar words. These statements are based on the Company's current plans and expectations and involve risks and uncertainties that could cause actual events and results to vary materially from those contemplated by such statements. Risks and uncertainties relate to, among other things, changing market conditions in the overall and regional economy and in the retail industry, the availability and cost of real estate, construction costs and delays, labor unrest, generic drug pricing, natural or manmade disasters, competition, maintaining satisfactory relationships with vendors, changes in applicable law or in the interpretation of applicable law by regulatory agencies or by legal, accounting or other professional advisors, or by the Company, and other factors described from time to time in the Company's news releases and in its annual, quarterly and other reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended January 31, 2008. Please refer to such filings for a further discussion of these risks and uncertainties. Undue reliance should not be placed on forward-looking statements which speak only as of the date of this news release. The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances that may arise after the date of this news release.

About the Company

Headquartered in Walnut Creek, California, Longs Drug Stores Corporation is one of the most recognized retail drug store chains on the West Coast and in Hawaii. The Company operates 516 retail pharmacies and offers a wide assortment of merchandise focusing on health, wellness, beauty and convenience. Longs also provides pharmacy benefit management services and Medicare beneficiary prescription drug plans through its wholly-owned subsidiary, RxAmerica, LLC. Additional information about Longs and its services is available at http://www.longs.com/ and more information about RxAmerica is available at http://www.rxamerica.com/.

Contact: 925-979-3979 Condensed Consolidated Income Statements (unaudited) For the 13 weeks ended May 1, April 26, 2008 2007 Thousands Except Per Share Amounts Revenues: Retail drug store sales $1,219,645 $1,185,011 Pharmacy benefit services revenues 187,336 111,999 Total revenues 1,406,981 1,297,010 Costs and expenses: Cost of retail drug store sales 894,477 881,059 Prescription drug plan benefit costs 163,089 92,496 Operating and administrative expenses 309,661 286,270 Provision for store closures and asset impairments, net 217 9,215 Operating income 39,537 27,970 Interest expense 2,786 1,676 Interest income (255) (196) Income from continuing operations before income taxes 37,006 26,490 Income taxes 13,923 10,464 Income from continuing operations 23,083 16,026 Income (loss) from discontinued operations, net of tax 456 (2,988) Net income $23,539 $13,038 Earnings per common share: Basic: Income from continuing operations $0.65 $0.43 Income (loss) from discontinued operations 0.01 (0.08) Net income 0.66 0.35 Diluted: Income from continuing operations $0.63 $0.42 Income (loss) from discontinued operations 0.02 (0.08) Net income 0.65 0.34 Dividends per common share $0.14 $0.14 Weighted average number of shares outstanding: Basic 35,756 37,321 Diluted 36,442 38,298 Number of stores in continuing operations, beginning of period 510 486 Stores opened 2 1 Stores acquired 5 6 Stores closed (1) (6) Number of stores in continuing operations, end of period 516 487 Number of stores in discontinued operations, beginning of period - 23 Stores opened - - Stores acquired - - Stores closed - (10) Number of stores in discontinued operations, end of period - 13 Store relocations - 1 Condensed Consolidated Balance Sheets (unaudited) May 1, January 31, April 26, 2008 2008 2007 Thousands Except Share Information Assets Current Assets: Cash and cash equivalents $37,917 $27,019 $24,719 Accounts receivable, net 327,452 334,972 296,924 Merchandise inventories, net 452,319 510,482 477,973 Deferred income taxes 61,559 64,500 58,890 Prepaid expenses and other current assets 24,253 22,043 23,813 Assets held for sale 4,173 4,173 8,468 Total current assets 907,673 963,189 890,787 Property: Land 116,564 116,564 112,810 Buildings and leasehold improvements 735,799 725,930 669,152 Equipment and fixtures 640,629 628,556 612,021 Total 1,492,992 1,471,050 1,393,983 Less accumulated depreciation 733,377 715,682 700,716 Property, net 759,615 755,368 693,267 Goodwill 84,394 84,394 84,450 Intangible assets, net 32,070 32,240 23,248 Other non-current assets 11,383 11,525 4,577 Total $1,795,135 $1,846,716 $1,696,329 Liabilities and Stockholders' Equity Current Liabilities: Trade accounts payable $232,954 $273,953 $268,863 Pharmacy benefits payable 164,244 176,829 126,275 Accrued employee compensation and benefits 108,030 120,458 114,045 Taxes payable 35,430 58,998 39,461 Other accrued expenses 96,125 63,110 69,062 Current maturities of debt 36,727 36,727 6,727 Total current liabilities 673,510 730,075 624,433 Long-term debt 197,636 183,364 112,364 Deferred income taxes and other long- term liabilities 103,946 105,352 119,234 Total liabilities 975,092 1,018,791 856,031 Commitments and Contingencies Stockholders' Equity: Common stock: par value $0.50 per share, 120,000,000 shares authorized, 35,727,000, 36,204,000 and 37,900,000 shares outstanding 17,863 18,102 18,950 Additional capital 293,115 288,385 269,781 Retained earnings 509,065 521,438 551,567 Total stockholders' equity 820,043 827,925 840,298 Total $1,795,135 $1,846,716 $1,696,329 Condensed Statements of Consolidated Cash Flows (unaudited) For the 13 weeks ended May 1, April 26, 2008 2007 Thousands Operating Activities: Net income $23,539 $13,038 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 26,273 22,583 Provision for store closures and asset impairments, net (620) 10,340 Deferred income taxes and other 258 1,104 Stock awards and options, net 1,935 6,333 Excess tax benefits related to stock awards and options (1,025) (1,923) Common stock contribution to benefit plan 10,428 7,419 Changes in assets and liabilities: Accounts receivable (66,968) (28,682) Merchandise inventories 59,181 15,100 Other assets (2,068) (1,745) Current liabilities and other (55,110) (22,320) Net cash provided by (used in) operating activities (4,177) 21,247 Investing Activities: Capital expenditures (28,745) (28,164) Acquisitions (2,636) (9,427) Proceeds from dispositions of property and intangible assets 496 4,358 Net cash used in investing activities (30,885) (33,233) Financing Activities: Proceeds from (repayments of) revolving line of credit borrowings, net 17,000 (3,000) Repayments of private placement notes (2,728) (2,727) Repurchase of common stock (39,260) (2,825) Proceeds from exercise of stock options 593 6,584 Dividend payments (5,117) (5,282) Medicare Part D subsidy receipts (disbursements), net 74,488 14,744 Excess tax benefits related to stock awards and options 1,025 1,923 Other (41) (308) Net cash provided by financing activities 45,960 9,109 Increase (decrease) in cash and cash equivalents 10,898 (2,877) Cash and cash equivalents at beginning of period 27,019 27,596 Cash and cash equivalents at end of period $37,917 $24,719 Supplemental disclosure of cash flow information: Cash paid for interest, net of amounts capitalized $3,403 $2,999 Cash paid for income taxes 10,862 16,402

Longs Drug Stores Corporation

CONTACT: Longs Drug Stores Corporation, +1-925-979-3979

Web site: http://www.longs.com/

Source: PRNewswire-FirstCall

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