Merrill Downgrades Duane Reade to 'Sell'

Analyst Monica Aggarwal says she was surprised by the degree of the drug-store chain's earnings shortfall

Merrill Lynch downgraded Duane Reade (DRD ) to sell from neutral.

On Wednesday the drug-store chain forecast 38 cents to 41 cents fourth quarter earnings per share, and $1.40 to $1.50 2003 earnings per share. Analyst Monica Aggarwal says the degree of the earnings per share shortfall in the fourth quarter was surprising. She notes front comp-store sales of 0.8% were disappointing against very easy comparisons, and says the miss was mainly due to the weaker-than-expected holiday season, which impacted both sales and gross margins.

Aggarwal cut her $1.55 2003 earnings per share estimate to $1.35, and thinks there could be further risk to her numbers if business doesn't pick up in the second half of 2003.

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