Exhibit 99.1
Longs Drug Stores Corporation Reports
23% Increase in First Quarter Net Income
WALNUT CREEK, California (May 17, 2006) – Longs Drug Stores Corporation (NYSE: LDG) today reported preliminary net income for the first quarter ended April 27, 2006, of $15.8 million, or $0.41 per diluted share, a 23 percent increase compared with $12.8 million, or $0.34 per diluted share, reported last year for the first quarter ended April 28, 2005.
Commenting on the quarter, Chairman, President and Chief Executive Officer Warren F. Bryant said, “We are pleased to report a 23 percent increase in net income compared with last year. It reflects the solid progress we continue to make on our initiatives while accommodating a significant shift in our pharmacy sales mix from commercial and state plans to the new Medicare drug plans. In addition, this was the first full quarter of RxAmerica’s new prescription drug plans launched in January of this year.”
The new Medicare drug benefit under the Medicare Modernization Act became effective on January 1, 2006. Longs Drugs participates in the Medicare drug benefit program through both its retail drug store pharmacies and RxAmerica, LLC, its pharmacy benefit services subsidiary. RxAmerica contracted with the federal Centers for Medicare and Medicaid Services (CMS) to be a prescription drug plan sponsor in 20 regions covering 35 states and the District of Columbia. As previously announced, Longs Drugs plans to complete its new self-distribution center in Patterson California, open or relocate approximately 20 to 25 stores and remodel up to 40 stores during the current fiscal year. The Company is estimating capital expenditures for the full year to be in the range of $200 to $220 million.
First Quarter
Net Income
Net income for the first quarter ended April 27, 2006, increased 23 percent to $15.8 million, or $0.41 per diluted share, compared with $12.8 million, or $0.34 per diluted share, reported last year for the first quarter ended April 28, 2005.
Revenues
Total revenues of $1.26 billion for the thirteen weeks ended April 27, 2006 were 9.5 percent higher than the $1.15 billion reported in the comparable period last year. Total retail drug store sales were $1.17 billion, a 2.2 percent increase from $1.14 billion in the comparable period last year. Same-store sales increased 1.5 percent with pharmacy same-store sales increasing 5.0 percent and front-end same-store sales decreasing 1.8 percent. Pharmacy sales were 51.2 percent of total drug store sales during the period, compared with 49.5 percent a year ago.
Pharmacy benefit services generated revenues during the first quarter of $93.4 million compared with the $9.6 million reported last year. Approximately $82.3 million of the increase was attributable to the addition of the prescription drug plans for Medicare beneficiaries.
Retail Drug Store Gross Profit
The retail drug store gross profit for the first quarter ended April 27, 2006 was $290.0 million, or 24.9 percent of sales, compared with a gross profit of $293.3 million, or 25.7 percent of sales, last year. The decline in the retail drug store gross profit margin was primarily due to the sales mix and the negative impact of the new Medicare drug benefit. Medicare represented approximately 13 percent of Longs Drugs retail pharmacy sales during the quarter, of which a significant portion were previously a part of Medicaid or commercial plans. The LIFO provision for the first quarter ended April 27, 2006 was $2.0 million, flat with the first quarter of last year.
Prescription Drug Plan Gross Profit
During the first quarter ended April 27, 2006, the Company incurred benefit costs for its prescription drugs plans of $77.3 million, resulting in a gross profit for the quarter of $5.0 million, or 6.1 percent of prescription drug plan revenues.
Operating and Administrative Expenses
Operating and administrative expenses for the first quarter ended April 27, 2006 were $258.6 million, or 20.5 percent of revenues, compared with $258.8 million, or 22.5 percent of revenues last year. Operating and administrative expenses in the first quarter were flat compared with last year despite $1.3 million in stock option expense. The Company adopted FAS 123 R prospectively in the first quarter. The decline in the operating and administrative expense rate is primarily due to expense control and the growth of RxAmerica revenues during the first quarter of this year compared with last year.
The Company also adopted FSP FAS 13-1 in the first quarter and applied this standard retrospectively to its previously reported financial statements. This new standard requires companies to expense rental costs throughout the lease term, including the pre-opening construction period. Longs’ previous accounting policy was to capitalize rent during the construction period. The change in accounting for leases resulted in higher rent expense during the construction period and lower rent expense over the remainder of the lease. A schedule that applies FSP FAS 13-1 to the previously reported quarterly results for Fiscal 2006 is included in the Form 8-K filed today. Full year Fiscal 2006 earnings per diluted share remain unchanged from the previously reported $1.93.
Operating Income
Operating income for the first quarter ended April 27, 2006 was $26.2 million, or 2.1 percent of revenues, compared with $22.8 million, or 2.0 percent of revenues, last year.
Management Outlook
For the 52 weeks ending January 25, 2007, Longs estimates that total revenues will increase 10 to 12 percent. It estimates that total retail drug store sales will increase 4 to 6 percent and same-store sales 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 net income of $1.74 to $1.84 per diluted share in Fiscal 2007. The outlook for Fiscal 2007 reflects option expenses and a change in accounting for leases that are explained above. The Company reported Fiscal 2006 net income of $1.93 per diluted share, including a $6.6 million after-tax gain on the sale of its Lathrop distribution facility.
For the second quarter ending July 27, 2006, Longs estimates that total revenues will increase 9 to 11 percent. It estimates that total retail drug store sales will increase 2 to 4 percent and same-store sales will be flat to up 2 percent compared with the second quarter of last year. Given these
revenue assumptions and the Company’s continued progress on previously stated initiatives, Longs’ goal is to achieve net income in the range of $0.34 to $0.39 per diluted share in the second quarter. The Company reported net income for the second quarter ended July 28, 2005 of $0.43 per diluted share, after adjusting for the retrospective application of FSP FAS 13-1 for lease accounting.
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 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 24, 2006 by dialing 412-317-0088 or toll free 877-344-7529 and using the account number 390663 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, total revenues, same-store sales, net income, impact of FAS 123R and FSP FAS 13-1, completing and operating the Patterson distribution center, expansion and remodeling of stores, capital expenditures for Fiscal Year 2007, managing and operating new Medicare prescription drug plans and leveraging of investments in RxAmerica, and are indicated by such words or phrases as “projects, expects, estimates, goals, plans,” or similar words or phrases. 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 included in or contemplated by such statements. Risks and uncertainties include, among other things, risks relating to changing market conditions in the overall and regional economy and in the retail industry, the new Medicare drug benefit, construction of the Patterson distribution facility, labor unrest, natural or manmade disasters, 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, the Company’s ability to achieve greater visibility into its inventories and gross profits on a short and long term basis, construction delays, and other factors described from time to time in the Company’s media releases and in its annual, quarterly and other reports filed with the Securities and Exchange Commission. Please refer to such filings for a further discussion of these risks and uncertainties. The Company undertakes no obligation to update any projections or other forward-looking statements to reflect events or circumstances that may arise after the date of this release.
About the Company
Headquartered in Walnut Creek, California, Longs Drug Stores Corporation (NYSE: LDG) is one of the most recognized retail drug store chains on the West Coast and in Hawaii. With 477 stores, Longs Drugs provide expert pharmacy services and 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 www.longs.com and more information about RxAmerica is available at www.rxamerica.com.
Condensed Consolidated Income Statements (unaudited)
For the 13 weeks ended | ||||||||
April 27, 2006 | April 28, 2005 | |||||||
Thousands Except Per Share Amounts | ||||||||
Revenues: | ||||||||
Retail drug store sales | $ | 1,165,961 | $ | 1,140,820 | ||||
Pharmacy benefit services revenues | 93,400 | 9,608 | ||||||
Total revenues | 1,259,361 | 1,150,428 | ||||||
Costs and expenses: | ||||||||
Cost of retail drug store sales | 875,955 | �� | 847,484 | |||||
Prescription drug plan benefit costs | 77,278 | — | ||||||
Operating and administrative expenses | 258,607 | 258,770 | ||||||
Depreciation and amortization | 21,279 | 21,413 | ||||||
Operating income | 26,242 | 22,761 | ||||||
Interest expense | 1,362 | 2,450 | ||||||
Interest income | (911 | ) | (299 | ) | ||||
Income before income taxes | 25,791 | 20,610 | ||||||
Income taxes | 10,007 | 7,811 | ||||||
Net income | $ | 15,784 | $ | 12,799 | ||||
Earnings per common share: | ||||||||
Basic | $ | 0.42 | $ | 0.34 | ||||
Diluted | 0.41 | 0.34 | ||||||
Dividends per common share | $ | 0.14 | $ | 0.14 | ||||
Weighted average number of shares outstanding: | ||||||||
Basic | 37,319 | 37,383 | ||||||
Diluted | 38,289 | 38,102 | ||||||
Financial Highlights | ||||||||
Pharmacy benefit services revenues (thousands): | ||||||||
Pharmacy benefit management revenues | $ | 11,081 | $ | 9,608 | ||||
Prescription drug plan revenues | 82,319 | — | ||||||
Total | $ | 93,400 | $ | 9,608 | ||||
Gross Profit: | ||||||||
Retail drug store gross profit margin | 24.9 | % | 25.7 | % | ||||
Prescription drug plan gross profit margin | 6.1 | % | N/A | |||||
Operating income as a % of revenues: | ||||||||
Retail drug store segment | 1.9 | % | 1.7 | % | ||||
Pharmacy benefit services segment | 4.2 | % | 30.2 | % | ||||
Number of stores, beginning of period | 476 | 472 | ||||||
Stores opened | 1 | 0 | ||||||
Stores closed | 0 | 0 | ||||||
Number of stores, end of period | 477 | 472 | ||||||
Stores relocated | 0 | 0 |
Condensed Consolidated Balance Sheets (unaudited)
April 27, 2006 | April 28, 2005 | January 26, 2006 | |||||||
Thousands Except Share Information | |||||||||
Assets | |||||||||
Current Assets: | |||||||||
Cash and cash equivalents | $ | 74,405 | $ | 56,518 | $ | 74,662 | |||
Pharmacy and other receivables, net | 221,936 | 161,561 | 183,213 | ||||||
Merchandise inventories, net | 439,152 | 434,829 | 462,030 | ||||||
Deferred income taxes | 44,004 | 43,987 | 42,258 | ||||||
Prepaid expenses and other current assets | 22,912 | 21,696 | 21,204 | ||||||
Total current assets | 802,409 | 718,591 | 783,367 | ||||||
Property: | |||||||||
Land | 113,131 | 107,451 | 111,097 | ||||||
Buildings and leasehold improvements | 611,145 | 568,374 | 578,158 | ||||||
Equipment and fixtures | 604,316 | 575,838 | 601,247 | ||||||
Total | 1,328,592 | 1,251,663 | 1,290,502 | ||||||
Less accumulated depreciation | 693,234 | 649,321 | 674,517 | ||||||
Property, net | 635,358 | 602,342 | 615,985 | ||||||
Goodwill | 84,383 | 82,085 | 82,085 | ||||||
Intangible assets, net | 6,186 | 6,189 | 6,060 | ||||||
Other non-current assets | 7,025 | 3,739 | 7,832 | ||||||
Total | $ | 1,535,361 | $ | 1,412,946 | $ | 1,495,329 | |||
Liabilities and Stockholders’ Equity | |||||||||
Current Liabilities: | |||||||||
Accounts payable and accrued expenses | $ | 402,850 | $ | 311,284 | $ | 349,888 | |||
Employee compensation and benefits | 121,647 | 133,492 | 138,202 | ||||||
Taxes payable | 49,521 | 48,817 | 58,493 | ||||||
Current maturities of debt | 43,727 | 8,870 | 45,870 | ||||||
Total current liabilities | 617,745 | 502,463 | 592,453 | ||||||
Long-term debt | 57,091 | 120,818 | 59,818 | ||||||
Deferred income taxes and other long-term liabilities | 76,852 | 66,446 | 80,469 | ||||||
Commitments and Contingencies | |||||||||
Stockholders’ Equity: | |||||||||
Common stock: par value $0.50 per share, 120,000,000 shares authorized, 37,749,000, 37,349,000 and 37,216,000 shares outstanding | 18,874 | 18,674 | 18,608 | ||||||
Additional capital | 227,180 | 190,571 | 213,374 | ||||||
Retained earnings | 537,619 | 513,974 | 530,607 | ||||||
Total stockholders’ equity | 783,673 | 723,219 | 762,589 | ||||||
Total | $ | 1,535,361 | $ | 1,412,946 | $ | 1,495,329 | |||
Condensed Statements of Consolidated Cash Flows (unaudited)
For the 13 weeks ended | ||||||||
April 27, 2006 | April 28, 2005 | |||||||
Thousands | ||||||||
Operating Activities: | ||||||||
Net income | $ | 15,784 | $ | 12,799 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 21,279 | 21,413 | ||||||
Deferred income taxes and other | (5,180 | ) | (4,217 | ) | ||||
Stock awards and options, net | 2,217 | 4,229 | ||||||
Common stock contribution to benefit plan | 5,999 | 3,735 | ||||||
Changes in assets and liabilities: | ||||||||
Pharmacy and other receivables | (38,723 | ) | (3,216 | ) | ||||
Merchandise inventories | 22,878 | (1,549 | ) | |||||
Other assets | (901 | ) | 659 | |||||
Current liabilities and other | 27,957 | 27,745 | ||||||
Net cash provided by operating activities | 51,310 | 61,598 | ||||||
Investing Activities: | ||||||||
Capital expenditures and acquisitions | (43,896 | ) | (19,649 | ) | ||||
Proceeds from property dispositions | 137 | 4,938 | ||||||
Net cash used in investing activities | (43,759 | ) | (14,711 | ) | ||||
Financing Activities: | ||||||||
Repayments of line of credit borrowings, net | — | (20,000 | ) | |||||
Repayments of private placement borrowings | (4,870 | ) | (4,870 | ) | ||||
Repurchase of common stock | (4,044 | ) | (21,281 | ) | ||||
Proceeds from exercise of stock options | 5,290 | 7,149 | ||||||
Dividend payments | (5,255 | ) | (5,257 | ) | ||||
Other | 1,071 | — | ||||||
Net cash used in financing activities | (7,808 | ) | (44,259 | ) | ||||
Increase (decrease) in cash and cash equivalents | (257 | ) | 2,628 | |||||
Cash and cash equivalents at beginning of period | 74,662 | 53,890 | ||||||
Cash and cash equivalents at end of period | $ | 74,405 | $ | 56,518 | ||||