drugstore.com, inc. (DSCM)

NetscribeTech (75.76) Submitted: 1/18/07 12:26 AM : Start Price: $3.22 DSCM Score: 18.78

Going get tough for drugstore.com, an online retail store and information site for health, beauty, wellness, and pharmacy products. Offerings include prescription drugs, over-the-counter medications, and personal-care products with over-the-counter segment contributing maximum to the sales i.e. 45%, rest being shared up by others.

drugstore.com has always been subject to competition from the traditional brick-and-mortar pharmacies, larger retailers such as Target and Wal-Mart and various online retailers including Amazon.com and eBay. Endorsing the same, the company is yet to achieve a profitability mark in its life spanning over 9 years and had piled up a $750 million accumulated deficit through the end of September 2006.

To add to its woes is the product-mix it offers to the customers. Drugstore.com sells mostly low-ticket items thereby limiting the top-line growth; cost savings are lost on shipping charges. Furthermore, the company is not participating in the Medicare Part D prescription drug benefit program offered by the U.S. government, thereby lacking the opportunity to benefit from the millions of baby boomers who will be switching to Medicare over the next few years.

Drugstore.com has yet to become profitable, lacks a competitive advantage, and competes in unpredictable markets including online retail and prescription drug fulfillment. With negative cash flows, it’s unlikely for the company to go for inorganic growth; thus a turnaround in near future looks dubious.

Report this Post Replies: 0 | Reply