Duane Reade Lowers Guidance
Duane Reade (DRD) lowered its fourth-quarter earnings guidance Friday but the news didn't shake anyone's faith in the stock's $17 takeout price.
The drugstore chain, which plans to go private in a leveraged buyout to be completed in the second quarter, lowered its fourth-quarter and full-year earnings outlooks to below analysts' estimates, citing higher-than-expected litigation expenses and lower-than-expected sales.
Duane Reade now sees fourth-quarter earnings of 12 cents to 13 cents a share on $356.4 million in revenue. Analysts were forecasting earnings of 18 cents a share on revenue of $361 million. It cited litigation and promotion costs and bad weather. The company earned $9.5 million, or 39 cents a share, in the year-ago quarter.
Same-store sales increased 3% in the quarter, however, with front-end comps up 0.1% and pharmacy same-store sales rising 7%.The shares held steady at $16.80, their level since Robert Bass's Oak Hill Capital announced the $17-a-share LBO in late December. Richard Hastings, retail sector analyst at Bernard Sands, believes the company's news may not be as bad as it seems, saying the company has a "unique advantage" by having a huge amount of stores located in Manhattan. "They thrive in a place that is a logistical nightmare," said Hastings. "They deal with a lot most retailers deal with only occasionally, including "catastrophic events like blackouts and Sept. 11, the higher cost of labor, complex local regulatory requirements, and higher than national average taxes." But, the analyst also said that a constant rise in expenses are not offset by revenue, citing in part the decline in prescription drug sales due to major drugs such as Prilosec and Claritin becoming over-the-counter medications. Additionally, its stores in the suburbs face "brutal competition" from other national drugstore chains like CVS (CVS) and Walgreen (WAG) as well as the discounters that have pharmacies, such as Costco (COST), BJ's Wholesale Club (BJ) and Wal-Mart (WMT), said Hastings.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV