Longs Drug Shares Sink After Warning
Longs Drug Stores Corp. was searching for a prescription for unhappy investors after the price of its shares plunged 25% on Friday, making the company the day’s biggest loser on the New York Stock Exchange.
The decline was a reaction to a statement by the 457-store chain late Thursday that its previously announced earnings estimates for the latest quarter and the fiscal year were too optimistic.
The Walnut Creek, Calif.-based company attributed the weaker profit estimates to the slow economy, lower profit margins and increased operating expenses.
Additionally, Longs said Thursday that it would take a $10.8-million charge in its fiscal fourth quarter ended Jan. 30 to write down the value of some stores and a computer system.
Longs’ shares fell $5.17 to $15.20 on the NYSE.
More than 3 million shares changed hands, about 10 times the average daily volume of the last two weeks.
The company, which operates 120 stores in Southern California, said earnings would come in at 14 to 17 cents a share for the quarter, compared with a previous estimate of 51 to 56 cents.
It projected earnings of 80 to 83 cents a share for the full fiscal year, compared with a previous estimate of $1.17 to $1.22.
Longs will issue its fourth-quarter and annual results Feb. 26.
Meredith Adler, an industry analyst with Lehman Bros. in New York, said the company’s lowered projections were partly the result of an aggressive marketing strategy that has backfired.
“They have been trying to drive traffic into the stores with some steep promotions,” Adler said.
“But it looks like they didn’t get the traffic they wanted and they wound up giving away the store.”
Last week, Longs said January sales at its stores open at least a year rose 2%, less than analysts had expected.
Longs did not provide details about the impairment charge, but Adler and other analysts said they suspected that the company was writing down the value of stores it has acquired in recent years from other chains, including Rite Aid Corp. and Drug Emporium Inc.
Longs took a similar $41-million charge in the first quarter, attributing it to “the lower value of store acquisitions in the Pacific Northwest and in California.”
