"Drugstore.com, Inc. Announces Fourth Quarter 2004 and Full Year 2004 Financial Results ; Company Reports Record Revenues and Quarterly and Annual Net Sales Growth of 47%."
Uh-oh. Here we go again. As I pointed out in a column back in January, discussing a similarly true-but-not-the-whole-truth headline posted by 1-800-Flowers.com
So, OK, I'll bite. If the company's going to go and beg the question, let's ask: What are y'all hiding under the counter there, drugstore.com?
We look first to see whether inventories and/or receivables are increasing faster than the 47% growth in sales. If they are, that's bad -- it could mean that accounting shenanigans are afoot. But fortunately, drugstore.com is all clear on that front. Receivables increased just 35% year-on-year, and inventories 41%. So far, so good.
Next, this is a dot-com, and as we all know, dot-coms do love their stock options. Drugstore.com turns out to be no exception here. Dilution since the end of the last fiscal year raced forward at a startling 10.8% pace. To which I say: Stop! Thief!
And finally, profits. It probably won't surprise you to learn that there are none, since drugstore.com hasn't made a penny of profit in its life. No matter, though. Young companies often take some time ramping up to profitability. And one of the first signs of profitability will often be a bit of free cash flow (FCF) being generated. Did drugstore.com perhaps have a bit of the ol' FCF to report?
Can't say. In imitation of all too many investor-unfriendly companies, drugstore.com didn't bother to provide a cash flow statement along with its earnings report. So let's just assume that, no, the company has no FCF to report today. That seems a pretty safe assumption in any case: Yahoo! reports that over the 12 months preceding the quarter just ended, drugstore.com had net cash outflows of well over $7 million, and the balance sheet now reflects just over $10.5 million in cash burn for all of 2004.
So at its present burn rate, it looks like drugstore.com still has enough money to keep running for another three years. That should be time enough to get its shelves in order, if it's willing to do so. We'd just like to see two things happen in the meantime: First, while you're down there, drugstore.com, try and put those stock options back in the drawer, and maybe see if you can find a cash flow statement while you're at it.
Fool contributor Rich Smith has no position in either company mentioned in this article.