D&K Healthcare Resources Reports 1st Quarter Loss - Strong Independent and Regional Sales Growth in the First Quarter of Fiscal 2005

Business Wire, Oct 26, 2004

ST. LOUIS -- D&K Healthcare Resources, Inc. (NASDAQ:DKHR):

--  Company reports diluted loss per share of $(0.14) for the first
    quarter of fiscal 2005, as a result of industry conditions

--  Independent and regional pharmacies sales for the quarter grew
    38%, excluding the Walsh acquisition

--  National accounts sales of $38 million for the quarter were 5% of
    total sales, compared to 27% in the prior year period

D&K Healthcare Resources, Inc. (NASDAQ: DKHR) reported today that due to lower sales in the national accounts trade class and lower gross profit margins in the independent and regional pharmacies trade class, it had a net loss per diluted share of $(0.14) for the quarter ended September 30, 2004. The Company's first fiscal quarter is historically the lowest in volume and gross profit and was further negatively impacted by a lack of price increases by pharmaceutical manufacturers and a slower than anticipated transition from a "buy and hold" to a "fee for service" industry model.

As reported on October 11, 2004 and in the Company's Annual Report, fewer than anticipated product price increases enacted by pharmaceutical manufacturers and changes in manufacturers' inventory management practices resulting in reduced availability of product have impacted revenues in the national accounts trade class. Net sales for the quarter in this trade class were $38.1 million compared to $127.9 million in the same quarter of last year. This represented approximately 5% of total sales for the quarter compared to 27% in the same quarter of last year.

Fewer than anticipated product price increases also resulted in lower gross profit margin in the independent and regional pharmacies trade class during the quarter ended September 30, 2004. Assuming that the majority of the anticipated price increases occur sometime during the fiscal year, a portion of this quarterly impact may be recovered in future periods. Sales trends in the independent and regional pharmacies trade class show continued growth with increases over the previous year of 38%, excluding Walsh HealthCare-related sales.

"The well-publicized issues currently facing our industry combined to produce disappointing first quarter results for D&K," said J. Hord Armstrong, III, D&K Healthcare's Chairman and Chief Executive Officer. "We are, however, very pleased with the continued strong top line performance of our independent and regional pharmacy trade class and remain convinced that our disciplined focus on growing this part of our business will produce significant benefits when our industry works through this difficult period."

Performance Highlights

--  Net sales in the independent and regional pharmacies trade class,
    excluding Walsh HealthCare, increased 38% in the fiscal 2005 first
    quarter driven primarily by new business wins and improving sales
    trends in D&K's service territory.

--  National accounts sales declined to $38 million, or 5% of total
    Company sales.

--  The inventory balance at September 30, 2004 was $551 million, up
    $229 million or 71% compared to the year ago balance, and up 19%
    compared to the June 30, 2004 balance. The higher inventory level
    compared to a year ago reflects the Walsh acquisition and new
    business growth. The sequential quarterly increase in inventory
    reflects the lack of sales in the national accounts trade class
    caused by fewer price increases and the beginning of a normal
    seasonal increase.

--  The long-term debt balance at September 30, 2004 was $322 million
    compared to $308 million at June 30, 2004 and $150 million a year
    ago. The increase over last year relates primarily to the funding
    of the Walsh acquisition.

--  A summary of net sales by class of trade for the fiscal 2005 first
    quarter, follows.


                         Net Sales Summary
                           (In Thousands)
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                                               First     % Change
                                               Quarter   vs. First
                                               Fiscal     Quarter
                                                 2005     Fiscal
                                                            2004
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Independent and Regional Pharmacies (1)        $653,983      104.4
National Accounts                                38,050     - 70.2
Other Healthcare Providers (2)                   30,892       11.0
PBI, Inc.                                         2,118      - 8.7
Software Services/Other                             633       14.6
Total                                          $725,676       51.6
(1)  Includes Walsh sales of $213,080 in the fiscal 2005 first
 quarter.
(2)  Includes Walsh sales of $2,333 in the fiscal 2005 first
 quarter.
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Company-wide Performance