IPO yields. Duane Reade $120M

Drug Store News, March 2, 1998 by Liz Parks

NEW YORK -- The $120 million Duane Reade raised through its initial public offering earlier this month will significantly reduce Duane Reade's debt, as well as give Duane Reade the capital to open 30 to 40 new stores in New York over the next two years.

Through the initial public offering on Feb. 9, Duane Reade sold 7,277,718 shares of stock priced at $16.50, on the high side of Duane Reade's expectations that the stock would initially sell for between $14 and $16 a share.

On Feb. 10, the IPO underwriter, Donaldson, Lufkin and Jenrette, reported that Duane Reade stock opened on Wall Street at $22 a share.

Chairman and chief exeuctive officer Anthony Cuti, who with his management team engineered the turnaround that led to the successful IPO, said he was "not surprised" by Wall Street's reaction to the stock. He said the proceeds will be used to "accelerate Duane Reade's expansion and to lower its debt," and he predicted that Duane Reade will end its fiscal year on Dec. 27 with at least 20 new stores.

According to Wayne Stefurak, an analyst for Standard & Poor, Duane Reade's debt will be reduced by approximately $60 million, which should lower the company's current interest payments of $25 million a year by about 20 percent.

Stefurak said there were a number of reasons for Wall Street's positive reaction to the IPO, including the fact that Duane Reade's cash flow in the form of earnings before interest, taxes, depreciation and amortization has improved significantly in the past year, that the company's ratio of EBITDA has risen to two times the chain's interest expense, that its ratio of adjusted debt to EBITDA, a measurement of how highly leveraged a business is, declined from six times adjusted debt to EBITDA in December 1996 to five times for the nine months ended Sept. 27, 1997, and the fact that Duane Reade has been increasing sales in its pharmacy departments, which, in turn, has helped it grow front end sales.