Thursday, Drugstore.com Inc. (DSCM) and Rite Aid Corp. (RAD) announced a restructured strategic relationship that includes the launch of a new Rite Aid online store for OTC products. In addition, drugstore.com lowered its third quarter and full year outlook, as it will transfer its local pick-up rights to Rite Aid.
Under the deal, drugstore.com will power a new Rite Aid online OTC (over-the counter) store offering a wide selection of products, including Rite Aid brand items, while marketing will be done by Rite Aid. Rite Aid said it will launch a new online store later this year.
drugstore.com will transfer the local pick-up rights to Rite Aid for about $10 million, to be paid in ten monthly installments. drugstore.com will also receive marketing services revenue for marketing Rite Aid's LPU offering on the drugstore.com site.
Dawn Lepore, chief executive officer and chairman of the board of drugstore.com, said, "While the transfer of local pick-up to Rite Aid will have an impact on total revenue, it will significantly strengthen our overall growth rate and gross margins and is consistent with our strategy to focus on our higher growth, higher margin businesses."
For the third quarter of 2008, drugstore.com now expects a net loss of $2.7 million to $3.7 million and net sales of $85.0 million to $90.0 million. Analysts polled by First Call/Thomson Financial expect a loss of $0.01 per share for the third quarter on revenue of $118.88 million.
Earlier, the company expected a net loss of $1.0 million to $2.0 million and net sales of $118.0 million to $122.0 million for the third quarter.
For 2008, the company currently anticipates a net loss of $0.2 million to $4.2 million and net sales of $370 million to $380 million. Street expects a loss of $0.02 per share for the year on revenue of $494.09 million.
Previously, the company expected a net loss of $3.0 million to earnings of $1.0 million and net sales of $490.0 million to $500.0 million for 2008.
Lepore said, "Looking ahead to 2009, we expect to exit the year with improved gross margins and strong adjusted EBITDA margins. We believe we will deliver consistent cash flow generation every quarter and GAAP profitability for 2009."
DSCM closed Thursday's regular trading session at $2.22, down 19 cents or 7.88%. In the after-hours, the shares further lost 1 cent. RAD finished Thursday's regular trading session at $1.17, down 3 cents or 2.50%.
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