UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[X] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
DUANE READE INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
___________
(2) Aggregate number of securities to which transaction applies:
__________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
______________
(4) Proposed maximum aggregate value of transaction: ______________
(5) Total fee paid: ____________
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0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ____________
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(3) Filing Party: __Duane Reade Inc.___
(4) Date Filed: _____April 21, 2004__________
For: Duane Reade Inc.
Approved By: John Henry
(212) 273-5746
SVP - Chief Financial Officer
Contact: Cara O'Brien/Lila Sharifian
Press: Stephanie Sampiere
(212) 850-5600
Financial Dynamics
FOR IMMEDIATE RELEASE
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DUANE READE INC. REPORTS FIRST QUARTER SALES AND EARNINGS RESULTS
New York, New York, April 21, 2004 -- Duane Reade Inc. (NYSE: DRD)
today reported financial results for the first quarter ended March 27, 2004.
FIRST QUARTER RESULTS
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Net sales increased 4.8% to $349.6 million, compared with $333.6
million in the same period last year. Pharmacy sales increased 10.2% and
represented 45.3% of total sales, compared with 43.1% last year. Total
same-store sales increased 1.6%. Pharmacy same-store sales increased 6.6% during
the quarter and front-end same-store sales declined 2.3%, largely due to
declining tobacco sales in metro New York City. Excluding tobacco sales,
front-end same-store sales decreased by approximately 0.6%.
Net income was $2.7 million, or $0.11 per diluted share, excluding
pre-tax transaction costs of $1.1 million incurred in connection with the
planned acquisition by Oak Hill Capital and pre-tax labor contingency expenses
of $1.1 million associated with a previously announced National Labor Relations
Board administrative law judge recommendation. Including both the transaction
costs and labor contingency expenses, net income was $1.4 million, or $0.06 per
diluted share. Net income for the first quarter of 2003 was $3.1 million, or
$0.13 per diluted share, including a pre-tax charge of $0.1 million representing
the early retirement premium on the redemption of higher cost debt.
Gross profit margin for the quarter was 21.7%, compared to 21.0% in
the comparable prior year period, reflecting improved front-end selling margins
and lower shrink losses.
Selling, general and administrative expenses for the quarter amounted
to $58.6 million, or 16.8% of sales, compared to $53.6 million, or 16.1% of
sales, in the same period last year. The increase as a percentage of sales is
primarily attributable to higher legal and litigation related expenses
associated with certain labor issues and the Company's efforts to recover its
World Trade Center business interruption insurance claim, higher promotional and
advertising expenses, severance costs associated with certain administrative
staff reductions and higher insurance costs.
FIFO EBITDA for the quarter amounted to $18.8 million, or 5.4% of
sales, compared to $18.6 million, or 5.6% of sales last year. Excluding the
higher litigation and severance-related expenses, FIFO EBITDA in the current
year amounted to $19.7 million, or 5.6% of sales.
Cash flow from operating activities for the quarter was $12.2
million, or 3.5% of sales, compared to $3.7 million, or 1.1% of sales in the
prior year's first quarter. The improved cash flow from operations was primarily
attributable to reductions in inventory purchases versus the previous year.
During the quarter the Company opened three new stores and closed one
store, compared to seven new stores opened and three stores closed in the year
ago period. Pre-opening expenses for the three new locations were $0.2 million,
compared to $0.4 million for the seven new stores in the prior year.
Commenting on the Company's performance, Anthony J. Cuti, Chairman of
the Board and Chief Executive Officer, stated, "First quarter sales and profit
were impacted by a sluggish regional economy, however, recent positive trends in
some leading indicators may suggest a gradual improvement. Nevertheless, Duane
Reade is continuing to work on initiatives to reduce costs and strengthen its
stores' market position through improved target marketing and strategic
relocations. Also, we continue to pursue our announced acquisition by Oak Hill
Capital. Our preliminary proxy statement relating to the acquisition was filed
on March 19, 2004, and we expect to close the transaction by the end of June."
The Company will hold a conference call on Wednesday, April 21, 2004
at 10:00 AM Eastern Time to discuss financial results for the first quarter of
2004. A live webcast of the call will be accessible from the Investor
Information section of the Duane Reade website (http://www.duanereade.com) and
the call will be archived on the website until May 5, 2004. Additionally, a
replay of the conference call will be available from 12:00 PM Eastern Time on
April 21, 2004 until 12:00 PM Eastern Time on April 25, 2004. The replay can be
accessed by dialing (800) 934-7855, access code "DRD."
Founded in 1960, Duane Reade is the largest drug store chain in the
metropolitan New York City area, offering a wide variety of prescription and
over-the-counter drugs, health and beauty care items, cosmetics, greeting cards,
photo supplies and photofinishing. As of March 27, 2004, the Company operated
243 stores.
IMPORTANT INFORMATION
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In connection with the acquisition by Oak Hill, Duane Reade and the Oak Hill
entities have filed relevant materials with the Securities and Exchange
Commission (the "SEC"), including a preliminary proxy statement, which was filed
on March 19, 2004. The definitive proxy statement will be sent to holders of
Duane Reade's common stock if and when it becomes available. Holders of Duane
Reade common stock are urged to read the preliminary proxy statement on file
with the SEC, the definitive proxy statement if and when it becomes available
and any other relevant materials filed by Duane Reade or the Oak Hill entities
because they contain, or will contain, important information. The preliminary
proxy statement is available, and the definitive proxy statement will be
available if and when it is filed, for free (along with any other documents and
reports filed by Duane Reade with the SEC) at the SEC's website, www.sec.gov. In
addition, you may obtain documents filed with the SEC by Duane Reade free of
charge by requesting them in writing from Duane Reade Inc., 440 Ninth Avenue,
New York, New York 10001, Attention: Corporate Secretary, or by telephone at
(212) 273-5700.
PARTICIPANT INFORMATION
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Duane Reade Shareholders, LLC, Duane Reade Holdings, Inc. and Duane Reade
Acquisition Corp. were formed as the acquiring entities at the direction of the
equity sponsors, which currently include Oak Hill Capital Partners, L.P., Oak
Hill Capital Management Partners, L.P. and certain members of Duane Reade's
management. Andrew J. Nathanson and Tyler J. Wolfram are the initial directors
of each newly formed Delaware corporation. These entities and their directors
and officers may be deemed to be participants in the solicitation of proxies in
connection with the proposed transaction. As of the date of this communication,
Mr. Nathanson has an indirect interest (through his participation in an
investment partnership) of less than 1% in the outstanding shares of the common
stock of Duane Reade and none of the other foregoing participants has any direct
or indirect interest, by security holdings or otherwise, in Duane Reade.
Duane Reade and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from its stockholders in connection
with the proposed transaction. Certain information regarding the participants
and their interest in the solicitation is set forth in the proxy statement for
Duane Reade's 2003 annual meeting of stockholders filed with the SEC on April
10, 2003 and the Form 4s filed by Duane Reade's directors and executive officers
since April 10, 2003. Stockholders may obtain additional information regarding
the interests of such participants by reading the preliminary proxy statement
and the definitive proxy statement, if and when it becomes available.
Except for historical information contained herein and statements relating to
the acquisition of the Company by Oak Hill, the statements in this release and
the accompanying discussion on the earnings conference call are forward-looking
and made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. In addition, this document may contain
statements, estimates or projections relating to, among other things, the
acquisition of the Company by Oak Hill that constitute "forward-looking"
statements as defined under U.S. federal securities laws. Forward-looking
statements involve known and unknown risks and uncertainties, which may cause
the Company's actual results in future periods to differ materially from
forecasted or expected results. Those risks include, among other things, the
competitive environment in the drugstore industry in general and in the
Company's specific market area, inflation, changes in costs of goods and
services and economic conditions in general and in the Company's specific market
area. Those and other risks are more fully described in Duane Reade's reports
filed with the SEC from time to time, including its annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K. You should not
place undue reliance on forward-looking statements, which speak only as of the
date they are made. Except to the extent otherwise required by federal
securities laws, we do not undertake t publicly update or revise any
forward-looking statements.
Tables to follow
DUANE READE INC.
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
For the 13 Weeks Ended
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March 27, March 29,
2004 2003
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Net sales $ 349,550 $ 333,622
Cost of sales 273,785 263,433
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Gross profit 75,765 70,189
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Selling, general & administrative expenses 58,643 53,574
Labor contingency expense 1,100 -
Transaction expense 1,102 -
Depreciation and amortization 9,066 7,557
Store pre-opening expenses 157 416
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70,068 61,547
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Operating income 5,697 8,642
Interest expense, net 3,437 3,517
Debt extinguishment - 105
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Income before income taxes 2,260 5,020
Income taxes 904 1,908
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Net income $ 1,356 $ 3,112
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Net Income Per Common Share - Basic (1):
Net income $ 0.06 $ 0.13
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Weighted average common shares outstanding 24,409 24,038
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Net Income Per Common Share - Diluted (1):
Net income $ 0.06 $ 0.13
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Weighted average common shares outstanding 24,651 24,368
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(1) Earnings per share amounts are calculated based on the weighted average
shares outstanding and may not add due to rounding.
DUANE READE INC.
Consolidated Balance Sheets
(In thousands)
March 27, December 27,
2004 2003
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(Unaudited)
Current Assets
Cash $ 1,285 $ 1,252
Receivables (1) 59,124 53,689
Inventories (2) 250,029 259,765
Current Portion of Deferred Taxes 7,923 8,150
Prepaid Expenses and Other Current Assets (3) 17,751 19,504
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Total Current Assets 336,112 342,360
Property and Equipment, net 191,055 189,469
Goodwill, net 161,625 161,318
Deferred Taxes 4,940 5,543
Other Assets (4) 99,651 88,836
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Total Assets $ 793,383 $ 787,526
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Current Liabilities
Accounts Payable $ 76,837 $ 85,258
Accrued Expenses (5) 34,563 29,122
Current Portion of Capital Leases 431 422
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Total Current Liabilities 111,831 114,802
Other Liabilities (6) 65,357 62,915
Long Term Debt and Capital Leases 277,462 272,488
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Total Liabilities 454,650 450,205
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Total Stockholders' Equity 338,733 337,321
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Total Liabilities and Stockholders' Equity $ 793,383 $ 787,526
============== ==============
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
(1) Includes third party pharmacy receivables of $37,872 and $33,672 at March
27, 2004 and December 27, 2003, respectively.
(2) Inventory decrease of $9,736 from December 27, 2003 is attributable to a
reduction in merchandise purchasing, reflecting the Company's focus on
working capital management.
(3) Decrease in prepaids and other current assets from December 27, 2003 is
primarily due to the collection of property insurance recoveries and other
short term assets.
(4) Increase in other assets from December 27, 2003 is primarily due to the
payment of premiums for executive split dollar life insurance policies,
combined with additions to customer list and lease acquisition costs.
(5) Increase in accrued expenses from December 27, 2003 is primarily due to
increased interest payable related to the convertible notes, as well as
increases in accrued payroll and accrued rent expenses.
(6) Increase in other liabilities from December 27, 2003 is primarily due to
the deferred rent impact of new stores added during the quarter, combined
with the additional labor contingency accrual recorded during the period.
DUANE READE INC.
Operating Data (Unaudited)
(Dollars in thousands)
For the 13 Weeks Ended
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March 27, March 29,
2004 2003
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EBITDA (LIFO Basis) (1) $ 18,559 $ 18,491
add back LIFO Expense 240 150
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EBITDA (FIFO Basis) (1) $ 18,799 $ 18,641
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FIFO EBITDA as a percentage of net sales 5.4% 5.6%
Capital expenditures $ 7,862 $ 14,250
Same-store sales growth 1.6% 1.5%
Pharmacy same-store sales growth 6.6% 6.4%
Front-end same-store sales growth -2.3% -2.0%
Pharmacy sales as a % of net sales 45.3% 43.1%
Third Party sales as a % of
pharmacy sales 92.0% 91.1%
Average weekly prescriptions
filled per store (2) 862 878
Number of stores at end of period 243 232
Retail square footage at end of period 1,732,727 1,628,567
Average store size (sq.ft.) at end of period 7,131 7,020
(1) As used in this report, EBITDA means earnings before interest, income taxes,
depreciation, amortization, transaction expenses, debt extinguishment costs,
extraordinary charges, non-recurring charges and other non-cash items (primarily
deferred rents). We believe that EBITDA, as presented, represents a useful
measure of assessing the performance of our operating activities, as it reflects
our earnings trends without the impact of certain non-cash and unusual charges
or income. EBITDA is also used by our creditors in assessing debt covenant
compliance. We understand that, although security analysts frequently use EBITDA
in the evaluation of companies, it is not necessarily comparable to other
similarly titled captions of other companies due to potential inconsistencies in
the method of calculation. EBITDA is not intended as an alternative to cash flow
provided by operating activities as a measure of liquidity, as an alternative to
net income as an indicator of our operating performance, nor as an alternative
to any other measure of performance in conformity with generally accepted
accounting principles. A reconciliation of EBITDA to both net income and cash
flow provided by operating activities is provided on the following page of this
release.
(2) Comparative stores only, does not include new stores.
DUANE READE INC.
Reconciliation of EBITDA to Net Income and
Net Cash Provided by Operating Activities (Unaudited)
(Dollars in thousands)
For the 13 Weeks Ended
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March 27, March 29,
2004 2003
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EBITDA $ 18,559 $ 18,491
Depreciation and amortization (9,066) (7,557)
Deferred rent (1,594) (2,292)
Labor contingency expense (1,100) -
Transaction expense (1,102) -
Debt extinguishment - (105)
Interest expense (3,437) (3,517)
Income taxes (904) (1,908)
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Net income $ 1,356 $ 3,112
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Net income 1,356 3,112
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization of property 6,276 5,117
Amortization of goodwill, intangibles and
deferred financing costs 3,268 2,948
Deferred tax provision 830 1,909
Non-cash rent expense and other 1,594 2,323
Changes in operating assets and liabilities (net of effect of acquisitions):
Receivables (5,435) (150)
Inventories 10,509 (11,785)
Accounts payable (8,421) 3,056
Prepaid and accrued expenses 6,645 693
Other assets/liabilities, net (4,428) (3,476)
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Cash provided by operating activities $ 12,194 $ 3,747
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