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FAY's MOVING INTO AUTOMOTIVE, OFFICE SUPPLY, AND "DEEP" DISCOUNT DRUG RETAIL OUTLETS IN FISCAL 1985; CHAIN TO ADD 17 DRUG STORES IN COMING YEAR

Executive Summary

Fay's is planning to branch out into stand-alone automotive, office supply, and deep discount drug retail outlets this year, the chain announced in its just released annual report for fiscal 1984 (ended Jan. 31). Discussing plans for the chain's specialty retail div. Fay's reported: "To date we have directed our efforts toward identifying those retailing opportunities that we feel have the most to offer, given our experience in merchandising consumable products in fields dominated by independent operators." Fay's noted that "three strong candidates have emerged: automotive stores, office supply and greeting card stores and deep discount drug stores." Under recently hired Laurence Padgett, the chain's specialty retail div. is "seeking to open retail units in each of these fields during FY 1985," the report adds. The upstate New York-based chain has over $19 mil. available from a 1 mil. share offering last spring to fund what the chain characterizes as its "aggressive expansion program." Fay's said that it will add "as many as 17" new drug stores in the upcoming fiscal year in addition to whatever diversification the chain makes from its core drug store business. Fay's Reports 28% Increase In Rx Sales To $60 Mil. In FY 1984; OTC Drug Sales Near $25 Mil. The annual report notes that the proceeds from the offering "have been invested in marketable equity securities and remain available for future expansion and operations." The annual report indicates that at the end of fiscal 1984 Fay's had $13.6 mil. in cash and an investment portfolio worth $17.7 mil. Fay's opened 10 stores during the last fiscal year, giving the chain a total of 102 drug store units at year end. "A major emphasis of our real estate effort will be directed at establishing a more meaningful presence in northeastern Pennsylvania," Fay's said. "Also, attention will be given to filling in the Buffalo and Albany, NY market areas to capitalize on the fixed advertising, distribution and supervision costs already devoted to these markets." In addition, Fay's said that in FY 1985 it will be establishing its "first on-site pharmacy in an extended health care facility." The chain already serves 24 nursing homes from "centrally located Fay's pharmacies," the annual report says. In preparation for the gwoth in stores, Fay's is modernizing and enlarging its Liverpool, NY distribution center. "A highrise storage addition to the existing structure will become fully operational in the summer of 1984, increasing our warehouse capacity by 2 mil. cubic ft.," the report points out. "This additional storage capacity and the installation of automated material handling systems, will allow us to service nearly 170 stores through our single warehouse facility." Fay's reported that its 15.6% sales growth in fiscal 1984 to $312.4 mil. was fueled in part by a 28% increase in Rx sales. During fiscal 1984, sales of Rx drugs represented 19% ($60 mil.) of Fay's overall sales, while OTC drug products contributed approximately 8% of sales (nearly $25 mil.), the annual report indicates. Highlighting its AccuFays computerized pharmacy systems, which are in all of the chain's stores, Fay's noted that its cash flow has improved by $2 mil. in the last three years due to the increased speed in which third party claims are reimbursed. Fay's said that AccuFays has enabled the chain to "maintain current third party receivable balances at fiscal 1981 levels." The annual report notes that "this was accomplished even though third party sales increased to 38% [$23 mil.] of total Rx sales in fiscal 1984 as compared to 29% [roughly $10 mil.] in fiscal 1981." As part of its community service program, Fay's helped initiate a Hemoccult testing program for the early detection of colon-rectal cancer in Rochester, NY, last fiscal year, the firm reported. "In Rochester, over 48,000 tests were distributed at area Fay's pharmacies," the annual report notes. "Similar programs have been successfully completed this year in the Buffalo and Syracuse, N.Y. metropolitan areas with another tentatively scheduled for Albany," the report adds. (FOOTNOTE) Chart omitted.

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