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. Last Updated: 07/27/2016

Expansion Hits 36.6's Bottom Line

Itar-TassSales at 36.6 rose to $391 million, but the company suffered $16.9 million net losses in its regional expansion drive.
Pharmacy chain 36.6, the country's largest drugstore company, on Wednesday reported a first-half loss on costs to expand outside the country's two biggest cities.

The net loss of $16.9 million compares with a year-earlier profit of $49.5 million, the company said in a statement. Sales gained 79 percent to $391 million on new outlets and increased spending on medicines and personal-care products.

36.6 is buying competitors outside Moscow and St. Petersburg and opening its own drugstores as economic growth boosts incomes. Local chains are less profitable than 36.6 outlets in the country's two largest cities because purchasing power is weaker, spokesman Mikhail Kolosov said.

"Expansion of the pharmacy chain into the regions led to a decrease in the gross profit margin in the retail sector," the company said in the statement. Sales growth was "primarily a result of the large number of pharmacies acquired in 2006."

36.6 had 1,052 drugstores in 90 Russian cities as of Sept. 1, a 26 percent increase from the end of 2006. The company plans to raise its store count to 1,450 by the end of the year and to open 500 outlets in 2008.

Earnings before interest, tax, depreciation and amortization increased 64 percent to $15 million. 36.6 shares have gained 34 percent this year, increasing the company's market value to 16 billion rubles ($623 million).

Selling, general and administrative expenses jumped 67 percent to $124 million. Debt increased by $7.1 million to $247 million at the end of June.