Longs to renew expansion in 2006

Drug Store News, Dec 19, 2005 by Doug Desjardins

WALNUT CREEK, Calif. -- After several years of slow growth, Longs Drug Stores will ramp up expansion next year with plans to add up to 25 new stores, which could put it on track to reach the 500-store mark.

The 476-store chain continued its turnaround during the third quarter ended Oct. 27 with net income of $8.9 million, a 44 percent increase over the same period last year. Total sales rose 1.8 percent to $1.12 billion, and same-store sales inched up 1.2 percent for the quarter.

For the first nine months of the year, Longs reported net income of $38.6 million. Longs chief executive officer Warren Bryant said it marked "the best earnings performance of the first nine months of any year during the past six years."

The retailer is hoping that performance carries over into 2006 when it will open 20 to 25 stores. The new openings are targeted for existing markets in California, Nevada and Hawaii.

"We think there's plenty of room to grow in the areas where we already do business," said Phyllis Proffer, Longs director of investor and public relations.

While it opened five stores this year, most of Longs' focus has been on remodeling stores to its new "Total Visual Appeal" look launched in 2003. Since then, it has remodeled 111 stores--about 23 percent of its store base--and plans to have 25 percent of its store base remodeled by the end of its fiscal year in January 2006.

For the fourth quarter, Longs is expecting total sales to increase 2 percent to 4 percent and same-store sales to rise 1 percent to 3 percent. And, like other pharmacy retailers, Longs is awaiting the impact of changes in Medicare that go into effect Jan. 1. In November, it teamed up with CIGNA HealthCare to cobrand the CIGNA Cignature Rx Medicare Prescription Drug Plan and to collaborate on in-store information and education.

In a Nov. 29 report, Lehman Bros. analyst Meredith Adler estimated that Longs will need "approximately 33,000 additional Medicare Part D customers, or $89 million in incremental sales, to offset the lower margins received from the switch of Medicaid and cash-paying customers to Medicare."