36.6 Posts First Annual Loss After Disruption of Supplies

VedomostiA customer paying for a purchase at a one of 36.6's Moscow drugstores.
Pharmacy Chain 36.6, the country's largest drugstore company, reported its first annual loss Friday after a new distribution system caused stores in Moscow to run short of some products last year.

The loss of $99.4 million compares with a profit of $34.5 million in 2006, the company said in a statement. Sales increased 65 percent to $871.1 million.

The retailer is seeking to reverse five consecutive quarters of losses after profitability was hurt by costs related to store openings and an outflow of customers from Moscow outlets when their supplies were disrupted.

This year the company is "focusing on a turnaround of its Moscow operations, executing a direct-to-manufacturer purchasing strategy, ramping up our private-label initiative and strengthening the management team," president Jere Calmes said in the statement.

36.6 fell 1.7 percent to 921.11 rubles in Moscow trading. The shares have slid 48 percent this year, cutting the company's market value to 7.4 billion rubles.

"There may be a turnaround this year" as the management has set a goal to return to profit on an EBITDA basis at the retail division, said Maxim Isayev, an analyst at RMG Securities. He cited a July 7 meeting with chief financial officer Dmitry Anisimov.

This year's steps include raising prices after no increases in 2007 and setting different prices in pharmacies depending on location, reducing staff and closing about 100 unprofitable outlets, Isayev said, citing Anisimov. The company plans to open 100 stores this year, keeping its total at the level of 2007, he added. It had 1,224 outlets at the end of the year.