UPDATE 2-Duane Reade quarterly operating loss narrows
* Net sales up 0.1 pct
* No forecast given due to pending acquisition by Walgreen (Adds executive comments from conference call)
CHICAGO, March 9 (Reuters) - Duane Reade Holdings Inc, New York City's largest drugstore chain, posted a smaller quarterly operating loss and improved margins, helped by sales gains at its pharmacy counters.
Its loss widened on a net basis, due largely to one-time charges. The privately held retailer issued its fourth-quarter results on Tuesday, just three weeks after it agreed to a $618 million takeover by U.S. drugstore market leader Walgreen Co (WAG.N). [ID:nN17122804]
Duane Reade is still "cautiously optimistic" about its prospects in the current economy, Chief Executive Officer John Lederer said.
The 50-year-old retailer, currently owned by private equity firm Oak Hill Capital Partners LP, said it was not giving a 2010 forecast due to the pending acquisition by Walgreen.
Drugstores such as Duane Reade and Walgreen have suffered as consumers have curbed spending on nonessential items such as candy. During 2009, Duane Reade updated the look of its stores, revamped its line of private label items and introduced its DR Delish brand of food and beverages.
Such strategies were key to attracting Walgreen, which has been working on similar improvements to jumpstart sluggish sales of general merchandise. Both chains are also offering more fresh food to attract busy shoppers.
Duane Reade's renovated and new stores are doing well, and the company plans to expand its DR Delish line this spring, Lederer said during a conference call.
Duane Reade's fourth-quarter net loss widened to $84.8 million from $17.4 million, including $59.5 million of charges reflecting the probability of a near-term mandatory redemption of its preferred stock.
Its operating loss narrowed to $1.4 million from $3.6 million.
Net sales rose just 0.1 percent to $465 million.
Sales at stores open at least a year rose 2.6 percent, with increases of 0.05 percent in general merchandise and 6 percent at the pharmacy counter.
Drugstores have been selling more generic drugs, which pressure pharmacy sales since they generate lower revenue but are more profitable than their branded counterparts.
At Duane Reade, that trend has continued into the first quarter. The company is already filling more than 65 percent of prescriptions with generic drugs, Lederer said, up from about 62.7 percent in the fourth quarter.
Product margin in the fourth quarter improved to 31.5 percent of net sales from 30.1 percent a year earlier.
The company has more than 250 stores, which are set to keep their name when Walgreen acquires them later this year.
Shares of Walgreen, which plans to report its own quarterly results in two weeks and buy Duane Reade by the end of August, slipped 0.4 percent to $34.60 in late-morning trading. (Reporting by Jessica Wohl and Dhanya Skariachan; Editing by Derek Caney, Lisa Von Ahn and John Wallace)
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