drugstore.com inc. Exceeds Expectations and Continues Progress to Profitability With Strong First Quarter

BELLEVUE, Wash.--(BUSINESS WIRE)--April 22, 2002--

drugstore.com, inc. Reports an All Time Sales High, Lowest Net Loss Since Q1 of 1999

drugstore.com, inc. (Nasdaq: DSCM), the leading Internet retailer of health, beauty, wellness, personal care and pharmacy products, announced today its first quarter financial results.

drugstore.com, inc. showed marked progress on its path to profitability, surpassing earlier estimates for the quarter, showing significant improvement over the first quarter of 2001 and improving upon its seasonally strong fourth quarter 2001 sales and pro forma loss results.

"By delivering a valuable service, combined with a unique and personalized shopping experience we are growing a loyal base of customers who are demonstrating their loyalty with their orders," said drugstore.com, inc. President and CEO Kal Raman. "Our focused, methodical and determined efforts to serve the customer continue to make a difference, and I am very pleased with the resulting financial progress we've made this quarter toward our profitability goals." The company anticipates that it can become EBITDA positive during 2003.

First quarter net sales increased by 34 percent over first quarter of 2001, to $43.9 million, and gross margin increased to 19.4 percent from 15.3 percent in the first quarter of 2001. Concurrently, operating expenses before stock-based compensation, amortization of intangible assets, and restructuring charges declined by 23 percent or $6.5 million year over year to $22 million. Average net revenue per order grew by $5 or 8 percent year over year to $67. Pro forma net loss for the quarter (excluding amortization of stock-based compensation, amortization of intangible assets and restructuring charges) decreased to $13.1 million or $0.20 per share, which reflects a year-over-year loss reduction of $8.7 million and a sequential loss reduction of $1.6 million. In addition, the company added 207,000 new customers, bringing its customer base to approximately 2.6 million. In comparison with first quarter 2001, drugstore.com acquired 21 percent more customers during the quarter, yet reduced marketing expenses by 20 percent.

Net loss on a GAAP basis declined year over year by $27.1 million to $14.6 million or $0.22 per share in the first quarter of 2002 from $41.7 million or $0.64 per share in the first quarter of 2001.

Operational Highlights for First Quarter of 2002

      -- Entered into a two-year marketing partnership with Blue Cross Blue Shield of Massachusetts that will offer special promotions on health and beauty aids and 30-day prescription pharmacy services to their 2.4 million members.

 

      -- Added an assortment of Rite Aid private label products to our store demonstrating an additional consumer benefit of our relationship with Rite Aid.

 

      -- Re-launched a streamlined Home Page with improved navigational features, a more visible search function, and fewer graphics for quicker load times.

 

    -- Launched the drugstore.com Baby Store in response to the pending Baby Boom this summer. The Baby Store offers products from preconception planning through birth and beyond.

Financial Highlights for First Quarter of 2002 (all comparisons are made with the first quarter of 2001 unless otherwise noted)

      -- Net sales increased by 34 percent to $43.9 million, increased sequentially from fourth quarter 2001 net sales of $43.5 million.

 

      -- Gross margin was 19.4%, grew by 410 basis points.

 

      -- Lowest spending levels since the second quarter of 1999; lowest GAAP and pro forma net loss since the first quarter of 1999. (We commercially launched our web site on February 24, 1999)

 

      -- Total operating expenses (excluding amortization of stock-based compensation, amortization of intangible assets and restructuring charges) declined by 23%.

 

      -- Pro forma net loss (excluding amortization of stock-based compensation, amortization of intangible assets and restructuring charges) decreased to $13.1 million or $0.20 per share, which reflects a year-over-year loss reduction of $8.7 million and a sequential loss reduction of $1.6 million.

 

      -- GAAP net loss of $14.6 million or $0.22 per share, reduced from $41.7 million or $0.64 per share.

 

      -- Cash use was reduced for the eighth consecutive quarter to $7.9 million; the quarter ended with $70.8 million in cash, cash equivalents and marketable securities.

 

      -- Net sales per order increased by 8 percent to $67.

 

      -- Acquired 207,000 new customers, bringing our total customer base to approximately 2.6 million.

 

    -- We remain focused on becoming EBITDA positive during 2003. Our EBITDA loss in the first quarter of 2002 was $10.9 million, which reflects our pro forma loss of $13.1 million excluding depreciation expense of $2.6 million, and net interest income of $400,000.

Outlook for Second Quarter of 2002
drugstore.com expects second quarter of 2002 net sales to approximate $46 million, and gross margin to approximate 19.5%. Pro forma net loss (before amortization of stock-based compensation, amortization of intangible assets and other non-cash charges) is expected to be in the range of $12.0 million to $12.5 million, and an EBITDA loss is anticipated in the range of $10 million to $10.5 million. The company also expects to add 195,000 new customers to its base.

About drugstore.com
drugstore.com, inc. (Nasdaq:DSCM) is a leading online drugstore and information site offering The Simple Way to Look and Feel your Best(TM) for health, beauty, wellness, personal care, and pharmacy products. The drugstore.com(TM) Web site provides a convenient, private, and informative shopping experience that encourages consumers to purchase products essential to healthy, everyday living. The drugstore.com Web store offers thousands of brand-name personal health care products at competitive prices; a full-service, licensed retail pharmacy; and a wealth of health-related information, buying guides, and other tools designed to help consumers make informed purchasing decisions.

drugstore.com, inc. has been awarded the Verified Internet Pharmacy Practice Sites (VIPPS) certification by the National Association of Boards of Pharmacy (NABP) as a fully licensed facility exercising the best safe pharmacy practices in compliance with federal and state laws and regulations.

In addition to Amazon.com (Nasdaq:AMZN), drugstore.com, inc. also has strategic relationships with Rite Aid Corporation (NYSE, PSE: RAD) General Nutrition Companies, and WellPoint Health Networks (NYSE:WPT). drugstore.com and The Simple Way to Look and Feel your Best are trademarks of drugstore.com, inc.

The historical results contained in this press release are preliminary and unaudited. In addition, this press release contains forward-looking statements regarding future events or the future financial and operational performance of drugstore.com. Words such as "expects", "believes", "anticipates" and similar expressions are intended to identify forward-looking statements. Actual performance may differ materially from those contained or implied in such forward-looking statements. Risks and uncertainties that could lead to such differences could include, among other things: drugstore.com's limited operating history, the unpredictability of future revenues and expenses and potential fluctuations in revenues and operating results, risks related to business combinations and strategic alliances, consumer trends, the level of competition, seasonality, the timing and success of expansion efforts, risks related to systems interruptions, possible governmental regulation, and the ability to manage a rapidly growing business. Additional information, regarding factors that potentially could affect drugstore.com's business, financial condition and operating results is included in drugstore.com's filings with the Securities and Exchange Commission, including in the prospectus dated March 15, 2000 relating to drugstore.com's public offering of common stock, in the prospectus on Form S-3, effective October 2, 2000 and in our periodic filings with the SEC on Forms 10K and 10Q.

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