Exhibit 99.1
Longs Drug Stores Corporation Reports First Quarter Results
WALNUT CREEK, California (May 21, 2008) – Longs Drug Stores Corporation (NYSE: LDG) 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.
TELECONFERENCEAND 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 atwww.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.
ABOUTTHE 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. 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 atwww.longs.com and more information about RxAmerica is available atwww.rxamerica.com.
Condensed Consolidated Income Statements (unaudited)
For the 13 weeks ended | ||||||||
May 1, 2008 | April 26, 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 Interest expense | 2,786 | 1,676 | ||||||
Interest income 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, 2008 | January 31, 2008 | April 26, 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, 2008 | April 26, 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 |