<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities and
Exchange Act of 1934
For the quarterly period ended Commission file number 333-41239
September 26, 1998.
-----------------------------
DUANE READE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3164702
(State or other jurisdiction (IRS Employer Identification)
of incorporation or
organization)
Number)
DRI I INC.* DELAWARE 04-3166107
DUANE READE* NEW YORK 11-2731721
* Guarantors with respect to the Company's 9 1/4% Senior Subordinated Notes
due 2008
440 NINTH AVENUE
NEW YORK, NEW YORK 10001
(Address of principal executive offices) (Zip Code)
(212) 273-5700
(Registrant's telephone number, including area code)
-----------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH
- ------------------- -------------------
Common Stock, $.01 par value per share New York Stock Exchange. Inc.
9 1/4% Senior Subordinated Notes due 2008 None
----------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
None.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Common Stock outstanding as of November 5,
1998: 16,985,557.
================================================================================
<PAGE>
INDEX
PAGE
PART I
ITEM 1. - FINANCIAL STATEMENTS (Unaudited)
Consolidated Statements of Operations -
For the 13 and 39 Weeks Ended September 26,
1998 and September 27, 1997 3
Consolidated Balance Sheets
As of September 26, 1998 and December 27, 1997 4
Consolidated Statements of Cash Flows -
For the 39 Weeks Ended September 26, 1998 and
September 27, 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Duane Reade Inc.
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the 13 Weeks Ended For the 39 Weeks Ended
------------------------------ ------------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 144,472 $ 106,633 $ 398,651 $ 313,796
Cost of sales 105,362 79,028 296,172 236,413
------------- ------------- ------------- -------------
Gross profit 39,110 27,605 102,479 77,383
------------- ------------- ------------- -------------
Selling, general & administrative expenses 22,768 17,035 63,687 48,218
Amortization 1,561 1,306 4,413 3,826
Depreciation 1,762 900 4,148 2,584
Store pre-opening expenses 1,141 257 3,008 600
Nonrecurring charges - 1,187 - 10,887
------------- ------------- ------------- -------------
27,232 20,685 75,256 66,115
------------- ------------- ------------- -------------
Operating income 11,878 6,920 27,223 11,268
Interest expense, net 6,115 8,728 18,674 25,433
------------- ------------- ------------- -------------
Income (loss) before income taxes 5,763 (1,808) 8,549 (14,165)
Income taxes - - - -
------------- ------------- ------------- -------------
Income (loss) before extraordinary charge 5,763 (1,808) 8,549 (14,165)
Extraordinary charge, net of income taxes of $-0- - - (23,600) -
------------- ------------- ------------- -------------
Net income (loss) $ 5,763 $ (1,808) $ (15,051) $ (14,165)
============= ============= ============= =============
Per Common Share - Basic
Income (loss) before extraordinary charge $ 0.34 $ (0.18) $ 0.54 $ (1.40)
Extraordinary charge - - (1.48) -
------------- ------------- ------------- -------------
Net income (loss) $ 0.34 $ (0.18) $ (0.94) $ (1.40)
============= ============= ============= =============
Weighted average common shares outstanding 16,986 10,257 15,936 10,128
============= ============= ============= =============
Per Common Share - Diluted
Income (loss) before extraordinary charge $ 0.31 $ (0.18) $ 0.50 $ (1.40)
Extraordinary charge - - (1.37) -
------------- ------------- ------------- -------------
Net income (loss) $ 0.31 $ (0.18) $ (0.87) $ (1.40)
============= ============= ============= =============
Weighted average common shares outstanding 18,355 10,257 17,211 10,128
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Duane Reade Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 26, December 27,
1998 1997
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 602 $ 261
Receivables 24,554 9,592
Inventories 140,028 66,665
Prepaid expenses 6,790 2,556
Property held for sale 5,863 -
----------------- -----------------
TOTAL CURRENT ASSETS 177,837 79,074
Property and equipment, net 65,651 32,557
Goodwill, net of accumulated amortization of $20,898 and $18,264 131,796 120,890
Other assets 28,074 17,000
----------------- -----------------
TOTAL ASSETS $ 403,358 $ 249,521
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Accounts payable $ 43,776 $ 23,510
Accrued interest 1,880 4,634
Other accrued expenses 15,486 10,873
Current portion of long-term debt 4,850 660
Current portion of capital leases 1,397 1,903
----------------- -----------------
TOTAL CURRENT LIABILITIES 67,389 41,580
Senior debt, less current portion 308,750 179,043
Subordinated zero coupon debt, net of unamortized discount
of $-0- and $30,827 - 92,553
Capital lease obligations, less current portion 2,907 3,926
Other noncurrent liabilities 11,760 6,528
----------------- -----------------
TOTAL LIABILITIES 390,806 323,630
----------------- -----------------
Stockholders' equity (deficiency)
Preferred stock, $0.01 par; authorized 5,000,000 shares;
issued and outstanding: none - -
Common stock, $0.01 par; authorized 30,000,000 shares;
issued and outstanding 16,985,557 and 10,260,577 shares 170 103
Paid-in capital 126,208 24,563
Accumulated deficit (113,826) (98,775)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 12,552 (74,109)
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 403,358 $ 249,521
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Duane Reade Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the 39 Weeks Ended
-----------------------------------
September 26, September 27,
1998 1997
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (15,051) $ (14,165)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Extraordinary charge 23,600 -
Depreciation and amortization of property and equipment 4,148 2,584
Amortization of goodwill and other intangibles 5,258 5,803
Accretion of principal of zero coupon debt 1,659 9,622
Noncurrent portion of nonrecurring charges - 2,200
Other 2,406 1,182
Changes in operating assets and liabilities, net of effect of acquisitions:
Receivables (14,962) (1,913)
Inventories (40,667) (17,958)
Accounts payable 16,036 10,695
Prepaid and accrued expenses (7,422) (621)
Increase in other (assets) liabilities, net (2,406) (632)
---------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (27,401) (3,203)
---------------- ---------------
Cash flows from investing activities:
Purchase of Rock Bottom assets (64,906) -
Capital expenditures (23,058) (4,931)
Proceeds from sale of capital assets - 1,075
---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (87,964) (3,856)
---------------- ---------------
Cash flows from financing activities:
Proceeds from initial public offering, net 101,606 -
Proceeds from new term loan 210,000 -
Proceeds from new senior subordinated notes 80,000 -
Repayment of old term loan (65,310) (6,107)
Repayment of old senior subordinated notes (89,893) (9)
Repayment of zero coupon debt (99,346) -
Premiums paid on early extinguishment of debt (11,496) -
Fees and expenses related to early extinguishment of debt (478) -
Net borrowings (repayments) - old revolving credit facility (24,500) 15,500
Deferred financing costs (7,058) (309)
Exercise of stock options 106 -
Repayments of new term loan (900) -
Net borrowings - new revolving credit facility 24,500 -
Repayments of capital lease obligations (1,525) (2,014)
---------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 115,706 7,061
---------------- ---------------
Net increase in cash 341 2
Cash at beginning of period 261 216
---------------- ---------------
Cash at end of period $ 602 $ 218
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
DUANE READE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein reflect all adjustments
which, in the opinion of management, are necessary to present fairly the
results of operations and financial position of Duane Reade Inc. (the
"Company"), and have been prepared, in all material respects, in accordance
with the same accounting principles followed in the preparation of the
Company's annual financial statements for the year ended December 27, 1997.
During the third quarter of 1998, the Company changed its inventory costing
method from the LIFO method to FIFO. The effect of this change was not material
to the accompanying financial statements. These financial statements should be
read in conjunction with the Company's financial statements included in its
Annual Report on Form 10K for the year ended December 27, 1997. The results for
the interim periods presented are not necessarily indicative of the results
expected for the full year.
2. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is based on the weighted average shares
outstanding during each period in accordance with the provisions of FASB
Statement No. 128 "Earnings Per Share." Basic earnings per share is computed
based on the weighted average number of common shares outstanding during the
period. Diluted earnings per share gives effect to all dilutive potential
common shares outstanding during the period. Potential common shares include
shares issuable upon exercise of the Company's stock options.
On January 14, 1998, the Company effected an 8.326 reverse stock split of its
common stock. All references to common stock amounts, shares and per share data
included herein have been adjusted to give retroactive effect to such reverse
stock split.
3. INCOME TAXES
Income taxes are recorded based on the estimated effective tax rate expected to
be applicable for the full fiscal year. The Company has not generated taxable
income since its inception in 1992 and expects to generate a tax loss for 1998
due to the effect of costs incurred in connection with the early extinguishment
of debt. Accordingly, no income tax provision has been recorded for the periods
presented.
4. REFINANCING PLAN AND INITIAL PUBLIC OFFERING
In February 1998, the Company successfully completed an initial public offering
of its stock which was part of a plan to refinance all of the Company's
existing indebtedness (the "Refinancing Plan") in order to enhance the
Company's financial flexibility to pursue growth opportunities and implement
capital improvements. The Refinancing Plan resulted in a reduction in the
Company's overall indebtedness, a simplification of the Company's capital
structure and access to additional borrowings. The principal components of the
Refinancing Plan were; (i) the sale by the Company of 6.7 million shares of
common stock for net proceeds of approximately $102 million; (ii) the execution
of a new secured credit agreement (the "Existing Credit Agreement") which
provides for borrowings up to approximately $160 million ($130 million of term
loans and up to $30 million of revolving loans); (iii) the issuance of $80
million aggregate principal amount of the Company's 9 1/4% Senior Subordinated
Notes due 2008 (the "Senior Notes") for net proceeds of approximately $77
million; (iv) the repayment of all outstanding borrowings under the Company's
former credit agreement (the "Old Credit Agreement"); (v) the redemption of the
Company's outstanding Zero Coupon Notes; and (vi) the redemption of the
Company's outstanding 12% Senior Notes due 2002. The interest rates under the
Existing Credit Agreement will be approximately the same as interest rates
under the Old Credit Agreement.
6
<PAGE>
DUANE READE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
5. EXTRAORDINARY CHARGE
During the 39 weeks ended September 26, 1998, as a result of the completion of
the Refinancing Plan, the Company incurred an extraordinary charge due to the
early extinguishment of debt. The extraordinary charge is comprised of the
following (dollars in millions):
7.5% call premium on Zero Coupon Notes $ 7.5
4.5% call premium on 12% Senior Notes due 2002 4.0
Accelerated amortization of deferred financing
costs and transaction expenses 6.8
Accelerated accretion of Zero Coupon Notes to
the Indenture stated value 4.0
Interest on 12% Senior Notes due 2002 and
accretion of Zero Coupon Notes during the 30
day defeasance period 1.3
-----
Extraordinary charge 23.6
Income taxes -
-----
Extraordinary charge, net of income taxes $23.6
=====
6. NONRECURRING CHARGES
During 1997, the Company considered a public offering of its common stock and
took certain steps in connection with those plans. Such plans were abandoned
when the Company entered into a recapitalization agreement with its
stockholders ("Stockholders") and certain investors ("Investors"). Under the
recapitalization agreement the Investors purchased from the Stockholders
substantially all of their stock holdings in the Company. In addition, because
of the change of control, the Company was obligated to and made offers to
repurchase all outstanding 12% Senior Notes due September 15, 2002 and 15%
Senior Subordinated Zero Coupon Notes due September 15, 2004 for the principal
amount or accreted value thereof plus a premium. The costs and expenses
incurred in connection with the abandoned public offering and the
recapitalization have been treated as nonrecurring because the expenses were
related to financing activities which the Company does not expect to repeat.
7. ACQUISITION
On September 11, 1998, the Company purchased substantially all of the operating
assets of Rock Bottom Stores, Inc., a health and beauty aid retailer operating
38 stores primarily in the outer boroughs of New York City. The purchase price
paid was $64.9 million, subject to certain post-closing adjustments. The
acquisition, accounted for under the purchase method, was financed with $80
million in additional term loans under the Existing Credit Agreement. The
purchase price, based on preliminary estimates of fair values, is allocable to
inventory ($32.7 million), property ($18.0 million), identifiable intangibles
($9.9 million) and goodwill ($13.5 million) net of reserves for expenses, store
conversion and closings ($9.2 million). The Company does not believe that the
final purchase price allocation will differ significantly from the preliminary
purchase price allocated at September 26, 1998.
The operating results of the Rock Bottom operations have been included in the
consolidated statement of income from the date of acquisition. The unaudited
pro forma results below assume the acquisition occurred as of December 28, 1997
and December 29, 1996 (in thousands, except per share amounts):
7
<PAGE>
DUANE READE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
For the 39 Weeks Ended
-----------------------------------
September 26, September 27,
1998 1997
---------------- ----------------
(Unaudited)
<S> <C> <C>
Net sales $ 561,457 $ 490,232
================ ================
Operating income $ 33,202 $ 17,721
================ ================
Income (loss) before extraordinary charge $ 9,438 $ (13,077)
Extraordinary charge, net of income taxes of $-0- (23,600) -
---------------- ----------------
Net income (loss) $ (14,162) $ (13,077)
================ ================
Per Common Share - Basic:
Income (loss) before extraordinary charge $ 0.59 $ (1.29)
Extraordinary charge (1.48) -
---------------- ----------------
Net income (loss) $ (0.89) $ (1.29)
================ ================
Per Common Share - Diluted:
Income (loss) before extraordinary charge $ 0.55 $ (1.29)
Extraordinary charge (1.37) -
---------------- ----------------
Net income (loss) $ (0.82) $ (1.29)
================ ================
</TABLE>
In management's opinion, the unaudited pro forma combined results are not
indicative of the actual results that would have occurred had the acquisition
been consummated at the beginning of fiscal 1998 or the beginning of fiscal
1997 or of future results of the combined operations under the ownership and
management of the Company.
8. INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of income (loss) per common
share for the periods presented (in thousands, except per share amounts):
<TABLE>
<CAPTION>
For the 13 Weeks Ended For the 39 Weeks Ended
----------------------------------- -----------------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary charge $ 5,763 $ (1,808) $ 8,549 $ (14,165)
Extraordinary charge - - (23,600) -
---------------- --------------- ---------------- ----------------
Net income (loss) $ 5,763 $ (1,808) $ (15,051) $ (14,165)
================ =============== ================ ================
Weighted average number of common shares
outstanding during the period 16,986 10,257 15,936 10,128
Common equivalent common shares 1,369 - 1,275 -
---------------- --------------- ---------------- ----------------
Weighted average number of shares outstanding 18,355 10,257 17,211 10,128
================ =============== ================ ================
Per common share - basic
Income (loss) before extraordinary charge $ 0.34 $ (0.18) $ 0.54 $ (1.40)
Extraordinary charge - - (1.48) -
---------------- --------------- ---------------- ----------------
Net income (loss) $ 0.34 $ (0.18) $ (0.94) $ (1.40)
================ =============== ================ ================
Per common share - diluted
Income (loss) before extraordinary charge $ 0.31 $ (0.18) $ 0.50 $ (1.40)
Extraordinary charge - - (1.37) -
---------------- --------------- ---------------- ----------------
Net income (loss) $ 0.31 $ (0.18) $ (0.87) $ (1.40)
================ =============== ================ ================
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
THE INFORMATION CONTAINED HEREIN INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS
THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. A NUMBER OF FACTS COULD CAUSE
ACTUAL RESULTS, PERFORMANCE, ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS
TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE,
BUT ARE NOT LIMITED TO, THE COMPETITIVE ENVIRONMENT IN THE DRUGSTORE INDUSTRY
IN GENERAL AND IN THE COMPANY'S SPECIFIC MARKET AREA; INFLATION, CHANGES IN
COSTS OF GOODS AND SERVICES; ECONOMIC CONDITIONS IN GENERAL AND IN THE
COMPANY'S SPECIFIC MARKET AREAS; DEMOGRAPHIC CHANGES; CHANGES IN PREVAILING
INTEREST RATES AND THE AVAILABILITY OF AND TERMS OF FINANCING TO FUND THE
ANTICIPATED GROWTH OF THE COMPANY'S BUSINESS; THE ABILITY OF THE COMPANY TO
SUCCESSFULLY INTEGRATE ITS RECENT ACQUISITION OF SUBSTANTIALLY ALL OF THE
ASSETS OF ROCK BOTTOM STORES, INC.; LIABILITY AND OTHER CLAIMS ASSERTED AGAINST
THE COMPANY; CHANGES IN OPERATION STRATEGY OR DEVELOPMENT PLANS; THE ABILITY TO
ATTRACT AND RETAIN QUALIFIED PERSONNEL; THE SIGNIFICANT INDEBTEDNESS OF THE
COMPANY; LABOR DISTURBANCE; CHANGES IN THE COMPANY'S ACQUISITION AND CAPITAL
EXPENDITURE PLANS; AND OTHER FACTORS REFERENCED HEREIN. IN ADDITION, SUCH
FORWARD LOOKING STATEMENTS ARE NECESSARILY DEPENDENT UPON ASSUMPTIONS,
ESTIMATES AND DATES THAT MAY BE INCORRECT OR IMPRECISE AND INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS. ACCORDINGLY, ANY
FORWARD-LOOKING STATEMENTS INCLUDED HEREIN DO NOT PURPORT TO BE PREDICTIONS OF
FUTURE EVENTS OR CIRCUMSTANCES AND MAY NOT BE REALIZED. FORWARD-LOOKING
STATEMENTS CAN BE IDENTIFIED BY, AMONG OTHER THINGS, THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "BELIEVES," "EXPECTS," "MAY," "WILL," "SHOULD," "SEEKS,"
"PRO FORMA," "ANTICIPATES," "INTENDS" OR THE NEGATIVE OF ANY THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSION OF STRATEGY OR
INTENTIONS. GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT
TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY
DISCLAIMS ANY OBLIGATIONS TO UPDATE ANY SUCH FACTORS OR TO PUBLICLY ANNOUNCE
THE RESULTS OF ANY REVISIONS TO ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.
REFINANCING PLAN AND INITIAL PUBLIC OFFERING
In February 1998, the Company successfully completed an initial public offering
of its stock which was part of the Company's Refinancing Plan in order to
enhance the Company's financial flexibility to pursue growth opportunities and
implement capital improvements. The Refinancing Plan resulted in a reduction in
the Company's overall indebtedness, a simplification of the Company's capital
structure and access to additional borrowings. The principal components of the
Refinancing Plan were; (i) the sale by the Company of 6.7 million shares of
common stock for net proceeds of approximately $102 million; (ii) the execution
of the Existing Credit Agreement which provides for borrowings up to
approximately $160 million ($130 million of term loans and up to $30 million of
revolving loans); (iii) the issuance of $80 million aggregate principal amount
of the Company's Senior Notes for net proceeds of approximately $77 million;
(iv) the repayment of all outstanding borrowings under the Old Credit
Agreement; (v) the redemption of the Company's outstanding Zero Coupon Notes;
and (vi) the redemption of the Company's outstanding 12% Senior Notes due 2002.
The Company believes the Refinancing Plan will result in a reduction in overall
interest expense because total interest expense associated with the Existing
Credit Agreement and the Senior Notes will be less than the total interest
expense associated with the 12% Senior Notes due 2002 and the Zero Coupon
Notes. The interest rates under the Existing Credit Agreement will be
approximately the same as interest rates under the Old Credit Agreement.
ROCK BOTTOM ACQUISITION
On September 11, 1998, the Company purchased substantially all of the operating
assets of Rock Bottom Stores, Inc., a health and beauty aid retailer operating
38 stores primarily in the outer boroughs of New York City. The purchase price
paid was $64.9 million, subject to certain post-closing adjustments. The
acquisition, accounted for under the purchase method, was financed with $80
million in additional term loans under the Existing Credit Agreement.
9
<PAGE>
RESULTS OF OPERATIONS
The following sets forth the results of operations as a percentage of sales for
the periods indicated.
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
-------------- --------------
September 26,1998 September 27,1997 September 26,1998 September 27,1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 72.9 74.1 74.3 75.3
----------------- ----------------- ----------------- -----------------
Gross Profit 27.1 25.9 25.7 24.7
Selling, general and
administrative expenses 15.8 16.0 16.0 15.4
Amortization 1.1 1.2 1.1 1.2
Depreciation 1.2 0.9 1.0 0.8
Store pre-opening expense 0.8 0.2 0.8 0.2
Non-recurring charges - 1.1 - 3.5
----------------- ----------------- ----------------- -----------------
Operating income 8.2 6.5 6.8 3.6
Interest expense net 4.2 8.2 4.7 8.1
----------------- ----------------- ----------------- -----------------
Income (loss) before
extraordinary charge 4.0 (1.7) 2.1 (4.5)
Extraordinary Charge 0.0 - (5.9) -
----------------- ----------------- ----------------- -----------------
Net loss 4.0% (1.7)% (3.8)% (4.5)%
================= ================= ================= =================
</TABLE>
THIRD QUARTER 1998 VERSUS THIRD QUARTER 1997
Net sales in the third quarter 1998 were $144.5 million, an increase of 35.5%
over last year's third quarter net sales of $106.6 million. Results include
sales from the 38 acquired Rock Bottom stores for two weeks in the quarter.
This increase was attributable to increased comparable store sales of 6.3% and
the sales generated by the Company's newly opened and acquired stores. During
the third quarter of 1998, the Company opened twelve stores and acquired 38
Rock Bottom stores compared to three new stores opened during the third quarter
of 1997. At September 28, 1998, the Company operated 134 stores compared to 65
stores at September 27,1997.
Cost of sales as a percentage of net sales decreased to 72.9% this year from
74.1% in the comparable quarter last year resulting in an increase in gross
profit margin to 27.1% from 25.9%. The increase in gross profit margin resulted
principally from contribution from higher margin merchandise such as greeting
cards, photo finishing, cosmetics, vitamins, generic drugs and private label
products.
Selling, general and administrative expenses were $22.8 million or 15.8% of net
sales and $17.0 million or 16.0% of net sales in the third quarter of 1998 and
1997, respectively. The percentage decrease in 1998 compared to 1997 resulted
principally from leverage from the increased sales as well as slightly lower
store labor as a percentage of net sales.
Amortization of goodwill and other intangibles in the third quarter of 1998 and
1997 was $1.6 million and $1.3 million, respectively.
During the third quarter of 1997, the Company recorded a $1.2 million
nonrecurring charge related to the Company's abandoned public offering and
recapitalization.
The Company incurred pre-opening costs of $1.1 million during the third quarter
of 1998 related to the opening of twelve stores. Pre-opening costs of $0.3
million were incurred during the third quarter of 1997 for the opening of three
stores.
10
<PAGE>
Net interest expense decreased 30.0% to $6.1 million in the third quarter of
1998 from $8.7 million in the third quarter of 1997. The decrease was
principally due to the impact of debt refinancing completed during February
1998 (in connection with the Refinancing Plan) which resulted in lower overall
debt levels and a reduction of interest rates.
The Company's net income increased by $7.6 million to $5.8 million in the third
quarter of 1998 from a net loss of $1.8 million in the third quarter of 1997
primarily as a result of the absence of the $1.2 million nonrecurring charge
that occurred in the prior year period, reduced interest expense, and increased
sales and gross profit margin, partially offset by increased selling, general
and administrative expenses, store pre-opening costs and depreciation and
amortization. The Company's EBITDA (earnings before interest, taxes,
depreciation, amortization, nonrecurring charges and extraordinary charge) for
the third quarter of 1998 increased by 52.2% to $16.4 million from $10.8
million in third quarter of 1997, primarily as a result of the foregoing
reasons.
THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 1998 VERSUS THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, 1997
Net sales for the thirty-nine weeks ended September 26, 1998 were $398.7
million, an increase of 27.0% over the net sales for the first thirty-nine
weeks of 1997 of $313.8 million. Results include sales from the 38 acquired
Rock Bottom stores for two weeks in the period. The increase was attributable
to increased comparable store sales of 6.7% and the sales generated by the
Company's newly opened and acquired stores. The Company opened 29 stores and
acquired 38 Rock Bottom stores during the period compared to five stores opened
during the same period last year.
Cost of sales for the thirty-nine weeks ended September 26, 1998 as a
percentage of net sales decreased to 74.3% from 75.3% in the comparable period
last year, resulting in an increase in gross profit margin to 25.7% from 24.7%.
The increase in gross profit margin resulted from increased contribution from
the sale of higher margin merchandise such as cosmetics, vitamins, general
merchandise, generic drugs and private label products; and higher promotional
allowances received from vendors.
Selling, general and administrative expenses were $63.7 million or 16.0% of net
sales and $48.2 million or 15.4% of net sales for the thirty-nine weeks ended
September 26, 1998 and September 27, 1997, respectively. The percentage
increase in 1998 compared to 1997 resulted principally from higher selling
expenses related to higher store salaries as a percentage of net sales and
increases in other store related expenses (principally attributable to new
stores during the early months of operation). The Company believes that as new
stores mature, these expenses will increase at a lesser rate than store sales.
Amortization of goodwill and other intangibles for the thirty-nine weeks ended
September 26, 1998 and September 27, 1997 was $4.4 million and $3.8 million,
respectively.
During the thirty-nine weeks ended September 26, 1998, as a result of the
completion of the Refinancing Plan, the Company incurred a $23.6 million
extraordinary charge due to the early extinguishment of debt.
During the thirty-nine weeks ended September 27, 1997, the Company recorded a
$10.9 million nonrecurring charge related to the Company's abandoned public
offering and recapitalization.
The Company incurred pre-opening costs of $3.0 million during the thirty-nine
weeks ended September 26, 1998 related to the opening of 29 stores. Pre-opening
costs of $0.6 million were incurred during the thirty-nine weeks ended
September 27, 1997, for the opening of five stores.
Net interest expense decreased 26.6% to $18.7 million during the thirty-nine
weeks ended September 26, 1998 from $25.4 million in the comparable period last
year. The decrease was due to the impact of the debt refinancing completed
during February 1998 (in connection with the Company's Refinancing Plan) which
resulted in lower overall debt levels and a reduction of interest rates.
11
<PAGE>
The Company's income before extraordinary charge increased by $22.7 million to
$8.5 million for the thirty-nine weeks ended September 26, 1998 from a net loss
of $14.2 million in the thirty-nine weeks ended September 27, 1997 primarily as
a result of the $10.9 million nonrecurring charge in the prior year period,
decreased interest expense, and increased sales and gross profit margin,
partially offset by increased selling, general and administrative expenses,
store pre-opening costs, depreciation and amortization. Including the
extraordinary charge, the net loss for the thirty-nine weeks ended September
26, 1998 was $15.1 million. The Company's EBITDA (earnings before interest,
taxes, depreciation, amortization, nonrecurring charges and extraordinary
charge) for the thirty-nine weeks ended September 26, 1998 was $38.2 million,
an increase of $8.4 million or 28.4% from $29.7 million in the year ago period,
primarily as a result of the foregoing factors.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $110.4 million and $37.5 million as of September 26, 1998
and December 27 1997, respectively. The increase is primarily due to increases
in inventory related to the asset purchase of Rock Bottom, including inventory,
which was financed with long-term senior bank indebtedness; the opening of
additional stores in the first thirty-nine weeks of 1998 and the Company's
increase in its investments in forward-buy inventory. In addition, accounts
receivable increased due to additional volume as well as an increase in third
party pharmacy receivables due to the Company's decision to no longer factor
these receivables.
The Company records significant accounts receivable related to pharmacy sales
in connection with third party plans. In the past, the Company had a
non-recourse factoring arrangement with an independent third party, Pharmacy
Fund, Inc. ("Pharmacy Fund") under which the Company sold its accounts
receivable associated with the third party plans. On September 8, 1998,
Pharmacy Fund declared bankruptcy and no longer purchases the Company's third
party plan receivables. The Company believes that it will not suffer any loss
from the bankruptcy. The Company plans to collect its own receivables for the
foreseeable future.
During the third quarter, the Company completed the transfer of its warehouse
operations to the 300,000 square foot distribution center in Maspeth, New York.
This new facility, which has doubled the Company's distribution capacity, is
located one mile away from the Company's former center. The Company's capital
requirements primarily result from opening and stocking new stores and from the
continuing development of management information systems. The Company believes
that there are significant opportunities to open additional stores, and
currently plans to open approximately 30 to 35 stores during 1998, of which 29
were opened through the third quarter (excluding the acquisition of the Rock
Bottom Stores). The Company expects to spend approximately $29 million in 1998
on capital expenditures primarily for new and remodeling stores, and the
warehouse expansion. Working capital is also required to support inventory for
the Company's existing stores. Historically, the Company has been able to lease
its store locations.
For the thirty-nine weeks ended September 26, 1998, net cash used in operating
activities was $27.4 million, compared to $3.2 million used in operating
activities during the thirty-nine ended September 27, 1997. The primary reason
for this use of cash was an increase in inventory and vendor receivables
previously discussed. The Company believes that the activities have not and
will not materially adversely affect its liquidity.
During the thirty-nine weeks ended September 26, 1998, net cash used in
investing activities was $88.0 million compared to $3.9 million during the year
ago period. The increase reflects the acquisition of 38 Rock Bottom stores and
capital expenditures in 1998 related to store openings and remodeling.
For the thirty-nine weeks ended September 26, 1998, net cash provided by
financing activities was $115.7 million compared to $7.1 million for the
thirty-nine weeks ended September 27, 1997. This increase reflects the
borrowing of $80 million to finance the Rock Bottom acquisition and related
supporting inventory as well as revolving credit facility borrowings, net of
repayments for capital lease obligations.
12
<PAGE>
The Company believes that, based on current levels of operations and
anticipated growth, cash flow from operations, together with other available
sources of funds, including borrowings under the Existing Credit Agreement,
will be adequate to make required payments of principal and interest on the
Company's indebtedness, to fund anticipated capital expenditures and working
capital requirements and to comply with the terms of its debt agreements. As of
September 26, 1998, the Company had borrowed approximately $24.5 million under
the revolving portion of its bank credit facility and had approximately $5.5
million of remaining availability. The ability of the Company to meet its debt
service obligations and reduce its total debt will be dependent upon the future
performance of the Company and its subsidiaries which, in turn, will be subject
to general economic, financial, business, competitive, legislative, regulatory
and other conditions, many of which are beyond the Company's control. In
addition, there can be no assurance that the Company's operating results, cash
flow and capital resources will be sufficient for repayment of its indebtedness
in the future. Substantially all of the Company's borrowings under the Existing
Credit Agreement bear interest at floating rates; therefore, the Company's
financial condition will be affected by the changes in prevailing interest
rates. The Company expects to enter into interest rate protection agreements to
minimize the impact from a rise in interest rates.
YEAR 2000 UPDATE
The Company is implementing a program to ensure that the Company computer
systems and applications (IT Systems) and non IT Systems will function properly
beyond 1999. This program includes inventorying year 2000 items, assigning
priorities to the identified items; assessing year 2000 compliance of items
determined to be material to the Company; remediating or replacing material
items that are not year 2000 compliant; and determining contingency plans that
may be required.
The Company has completed inventorying and prioritizing year 2000 compliance of
its IT Systems and is commencing these phases for its non IT systems, which
will include surveying significant third party vendors. The Company is in the
initial phases of upgrading its software and expects this phase to be completed
by March 31, 1999.
The Company is utilizing both internal and external resources to address year
2000 issues and believes that the cost of such modifications will approximate
$600,000. Approximately $250,000 of this includes system upgrades that had been
previously identified for operational enhancements.
The failure to correct a material year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, financial condition and liquidity. No assurances,
however, can be given that the Company will be able to identify and address all
year 2000 issues due to their complexity as well as the Company's dependence on
the technical skills of employees and independent contractors and on the
representations and preparedness of third parties with which the Company does
business. Although the Company believes that its efforts are designed to
appropriately identify and address year 2000 issues that are subject to the
Company's reasonable control, there can be no assurance that year 2000 issues
will not have a material adverse effect on the Company's business, financial
condition or results of operations.
Readers are cautioned that forward looking statements contained in the year
2000 update should be read in conjunction with the Company's disclosures on the
Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995
on page 9 of this document.
13
<PAGE>
TAX BENEFITS FROM NET OPERATING LOSSES
At December 27, 1997, the Company had net operating loss carryforwards ("NOLs")
of approximately $71 million, which are due to expire in the years 2007 through
2012. These NOLs may be used to offset future taxable income through 2012 and
thereby reduce or eliminate the Company's federal income taxes otherwise
payable. The Internal Revenue Code of 1986, as amended (the "Code"), imposes
significant limitations on the utilization of NOLs in the event of an
"ownership change," as defined in Section 382 of the Code (the "Section 382
Limitation"). The Section 382 Limitation is an annual limitation on the amount
of pre-ownership change NOLs that a corporation may use to offset its
post-ownership change income. The Section 382 Limitation is calculated by
multiplying the value of a corporation's stock immediately before an ownership
change by the long-term tax-exempt rate (as published by the Internal Revenue
Service). Generally, an ownership change occurs with respect to a corporation
if the aggregate increase in the percentage of stock ownership (by value) of
that corporation by one or more 5% shareholders (including certain groups of
shareholders who in the aggregate own at least 5% of that corporation's stock)
exceeds 50 percentage points over a three-year testing period. During June
1997, the Company entered into a recapitalization agreement with its
stockholders and certain investors whereby the investors purchased
substantially all of the stockholders stock holdings in the Company, all of the
outstanding shares of the Company were converted into a newly authorized class
of Common Stock and a new authorized class of preferred stock was created.
These transactions caused the Company to experience an ownership change. As a
result, the Company currently is subject to an annual Section 382 Limitation of
approximately $5 million on the amount of NOL generated prior to June 1997 that
the Company may utilize to offset future taxable income. In addition, the
Company believes that it will generate approximately $42 million of NOLs in
connection with the Refinancing Plan. Such NOLs will not be subject to the
Section 382 Limitation and may be utilized to offset future taxable income.
However, there can be no assurance that any NOLs will be able to be utilized by
the Company to offset future taxable income or that such NOLs will not become
subject to limitation due to future ownership changes.
SEASONALITY
In general, sales of drugstore items such as prescription drugs, OTC drugs and
health and beauty care products exhibit limited seasonality in the aggregate,
but do vary by product category. Quarterly results are primarily affected by
the timing of new store openings and the sale of seasonable products. In view
of the Company's recent expansion of seasonal merchandising, the Company
expects slightly greater revenue sensitivity relating to seasonality in the
future.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to certain legal actions arising in
the ordinary course of business. Based on information presently available to
the Company, the Company believes that it has adequate legal defenses or
insurance coverage for these actions and that the ultimate outcome of these
actions will not have a material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this
report:
(i) Financial Statements
(ii) Exhibits:
3.1(i) Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1(i) to the Company's
Registration Statement No. 333-41239 (the "Common Stock S-1")).
3.1(ii) Form of Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.1(i) to the Common Stock S-1).
3.2(i) Certificate of Incorporation of DRI I Inc. (incorporated by reference
to Exhibit 3.2(i) to the S-1 Registration Statement No. 333-43313 with
respect to the Company's 9 1/4% Senior Subordinated Notes due 2008 (the
"Notes S-1")).
3.2(ii) By-laws of DRI I Inc. (incorporated by reference to Exhibit 3.2(ii) of
the Notes S-1)
3.3 Second Amended and Restated Partnership Agreement of Duane Reade
(incorporated by reference to Exhibit 3.3 of the Notes S-1)
4.1 Form of Indenture (incorporated by reference to Exhibit 4.1 of the
Notes S-1)
10.1 Duane Reade Inc. 1997 Equity Participation Plan (incorporated by
reference to Exhibit 10.1 to the Common Stock S-1).
10.2 Duane Reade Inc. Holding Corp. 1992 Stock Incentive Plan (incorporated
by reference to Exhibit 10.2 to the Common Stock S-1).
10.3 Employment Agreement dated as of October 27, 1997, between the Company
and Anthony J. Cuti (incorporated by reference to Exhibit 10.3 to the
Common Stock S-1).
10.4 Employment Agreement, dated as of February 22, 1993, as amended,
between the Company and Gary Charboneau (incorporated by reference to
Exhibit 10.4 to the Common Stock S-1).
10.5 Employment Agreement, dated as of April 10, 1995, as amended, between
Duane Reade and Jerry M. Ray (incorporated by reference to Exhibit 10.5
to the Common Stock S-1).
10.6 Employment Letter Agreement, dated as of October 9, 1996, between Duane
Reade and Joseph Lacko (incorporated by reference to Exhibit 10.6 to
the Common Stock S-1).
10.7 Employment Letter Agreement, dated as of February 12, 1997, between the
Company and William Tennant (incorporated by reference to Exhibit 10.7
to the Common Stock S-1).
10.8 Agreement, dated as of November 22, 1996 between Duane Reade and Drug,
Chemical, Cosmetic, Plastics and Affiliated Industries Warehouse
Employees Local 815 (incorporated by reference to Exhibit 10.8 to the
Common Stock S-1).
10.9 Agreement, dated July 16, 1992, as amended, between Duane Reade and
Allied Trades Council (incorporated by reference to Exhibit 10.9 to the
Common Stock S-1).
10.10 Agreement, dated February 4, 1997, as amended between Duane Reade and
The Pharmacy Fund, Inc. (incorporated by reference to Exhibit 10.10 to
the Common Stock S-1).
10.11 Stockholders and Registration Rights Agreement, dated as of June 18,
1997, among the Company, DLJMB Funding II, Inc., DLJ Merchant Banking
Partners II, L.P., DLJ Diversified Partners, L.P., DLJ First ESC
L.L.C., DLJ Offshore Partners, II, C.V., DLJ
15
<PAGE>
EAB Partners, L.P., UK Investment Plan 1997 Partners, Bankers Trust New
York Corporation, Conac & Co., Muico & Co., Roton & Co. , Putnam High
Yield Trust, PaineWebber Managed Investment Trust on behalf of
PaineWebber High Income Fund, USL Capital Corporation, Pearlman Family
Partners, The Marion Trust, Bruce L. Weitz, BCIP Associates, BCIP Trust
Associates, L.P., Tyler Capital Fund L.P., Tyler International,
L.P.-II, and Tyler Massachusetts, L.P. (incorporated by reference to
Exhibit 10.13 to the Common Stock S-1).
10.12 Credit Agreement, dated as of February 13, 1998, among Duane Reade, as
the Borrower, Duane Reade Inc. and DRI I Inc., as the Parent
Guarantors, Various Financial Institutions set forth therein, as the
Lenders, DLJ Capital Funding, Inc., as the Syndication Agent for the
Lenders, Fleet National Bank, as the Administrative Agent for the
Lenders and Credit Lyonnais New York Branch, as the Documentation Agent
for the Lenders. (Incorporated by reference to Exhibit 10.12 of the
Company's Annual Report on Form 10-K for 1997).
10.13 Partnership Security Agreement, dated as of February 13, 1998, among
Duane Reade Inc. and DRI I Inc. and Fleet National Bank, as
Administrative Agent (Incorporated by reference to Exhibit 10.13 of the
Company's 1997 Annual Report on Form 10-K).
10.14 Borrower Security Agreement, dated as of February 13, 1998 between
Duane Reade and Fleet National Bank as Administrative Agent
(Incorporated by reference to Exhibit 10.14 of the Company's 1997
Annual Report on Form 10-K).
10.15 Holdings Pledge Agreement, dated as of February 13, 1997, among Duane
Reade Inc. and Fleet National Bank, as Administrative Agent
(Incorporated by reference to Exhibit 10.15 of the Company's 1997
Annual Report on Form 10-K).
27.1* Financial Data Schedule.
* Filed herewith.
(b) Reports on Form 8-K.
On August 7, 1998, the Company filed a current report on Form 8-K
(under Item 5) in connection with the Company signing a definitive
agreement under which it would acquire substantially all of the
operating assets of the Rock Bottom Stores, Inc.
On September 24, 1998, the Company filed a current report on Form
8-K (under Item 2) in connection with the Company's completion of
the acquisition of substantially all of the operating assets of Rock
Bottom Stores, Inc.
(c) Financial Statement Schedules: None.
Schedules for which provision is made in the applicable accounting regulations
of the Commission are either not required under the related instructions, are
inapplicable or not material, or the information called for thereby is
otherwise included in the financial statements and therefore has been omitted.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 10, 1998
DUANE READE INC.
(Registrant)
By: /s/ William J. Tennant
--------------------------------
Name: William J. Tennant
Title: Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf
of the registrant in the capacities indicated on November 10, 1998.
SIGNATURES TITLES
---------- ------
/s/ Anthony J. Cuti President and Chief Executive Officer
- ------------------------------- and Director (Principal Executive
Anthony J. Cuti Officer)
/s/ William J. Tennant Senior Vice President, Chief Financial
- ------------------------------- Officer (Principal Financial Officer;
William J. Tennant Principal Accounting Officer)
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 10, 1998
DRI I INC.
By: /s/ William J. Tennant
---------------------------------
Name: William J. Tennant
Title: Senior Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed on November 10, 1998 by:
SIGNATURES TITLES
---------- ------
/s/ Anthony J. Cuti President and Chief Executive Officer
- --------------------------------- and Director (Principal Executive
Anthony J. Cuti Officer)
/s/ William J. Tennant Senior Vice President, Chief
- --------------------------------- Financial Officer (Principal
William J. Tennant Officer)
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 10, 1998
DUANE READE INC.,
By: DRI I Inc. a general partner By: Duane Reade Inc., a general partner
By: /s/ William J. Tennant By: /s/ William J. Tennant
-------------------------------- -----------------------------------
Name: William J. Tennant Name: William J. Tennant
Title: Senior Vice President Title: Senior Vice President and Chief
and Chief Financial Officer Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below on November 10, 1998 by the
following persons in the capacities indicated with respect to Duane Reade Inc.
and DRI I Inc., the general partners of Duane Reade, on behalf of Duane Reade
(except as otherwise indicated):
SIGNATURES TITLES
---------- ------
/s/ Anthony J. Cuti President and Chief Executive Officer and
- ----------------------------- Director (principal executive officer)
Anthony J. Cuti
/s/ William J. Tennant Senior Vice President, Chief Financial
- ----------------------------- Officer (principal accounting and
William J. Tennant financial officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF JUNE 27, 1998 AND THE RELATED
CONSOLIDATED STATEMENT OF OPERATIONS FOR 13 AND 26 WEEKS ENDED JUNE 27, 1998
AND IS QUALIFIED ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000895364
<NAME> Duane Reade Inc.
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-26-1998 DEC-26-1998
<PERIOD-END> SEP-26-1998 SEP-26-1998
<CASH> 602 602
<SECURITIES> 0 0
<RECEIVABLES> 24,554 24,554
<ALLOWANCES> 0 0
<INVENTORY> 140,028 140,028
<CURRENT-ASSETS> 177,837 177,837
<PP&E> 79,455 79,455
<DEPRECIATION> (13,804) (13,804)
<TOTAL-ASSETS> 403,358 403,358
<CURRENT-LIABILITIES> 67,389 67,389
<BONDS> 317,904 317,904
0 0
0 0
<COMMON> 170 170
<OTHER-SE> 12,382 12,382
<TOTAL-LIABILITY-AND-EQUITY> 403,358 403,358
<SALES> 144,472 398,651
<TOTAL-REVENUES> 144,472 398,651
<CGS> 105,362 296,172
<TOTAL-COSTS> 105,362 296,172
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,115 18,674
<INCOME-PRETAX> 5,763 8,549
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 5,763 8,549
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (23,600)
<CHANGES> 0 0
<NET-INCOME> 5,763 (15,051)
<EPS-PRIMARY> 0.34 (0.94)
<EPS-DILUTED> 0.31 (0.87)
</TABLE>
