Rite Aid Corp. plans to refinance $500 million in debt and, in tandem with the transaction, is projecting net earnings for its fiscal 2014 first quarter, which would mark the drug chain's third straight profitable quarter.


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Rite Aid initiates debt refinancing, forecasts 1Q profit

June 7th, 2013

CAMP HILL, Pa. – Rite Aid Corp. plans to refinance $500 million in debt and, in tandem with the transaction, is projecting net earnings for its fiscal 2014 first quarter, which would mark the drug chain's third straight profitable quarter.

Rite Aid said Friday that it has initiated a cash tender offer for its $500 million of 7.5% senior secured notes maturing in 2017, which will by funded with the proceeds from a new $500 million second-lien term loan and cash and/or borrowings under the company's revolving credit facility.

According to Rite Aid, the transaction would extend the maturity of a portion of its outstanding debt and lower interest costs. The tender offer is scheduled to expire on July 5. The company plans to redeem any notes not tendered.

In connection with the debt refinancing, Rite Aid reported preliminary results for the fiscal 2014 first quarter, with net income estimated at $75 million to $90 million, or 8 cents to 9 cents per diluted share, compared with a net loss of $28.1 million, or a loss of 3 cents per share, for the fiscal 2013 quarter. The company noted that actual first-quarter results haven't been finalized by management.

Analysts, on average, estimate Rite Aid's first quarter earnings at 4 cents per share, with the forecast ranging from a low of breaking even to a high of 8 cents per share, according to Thomson Financial.

If the projection is borne out, it would signal another step toward improved profitability for Rite Aid. The drug chain realized earnings for fiscal 2013 ended March 2 — its first full-year profit in six years — and had capped off the year with profits in both the third and fourth quarters. The net income reported for the third quarter ended Dec. 1 had marked the company's first quarterly profit in more than five years.

Also on Friday, Rite Aid forecast adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the 2014 first quarter at $335 million to $345 million, up from $274.2 million a year earlier. The company said the improvement mainly stems from the continued benefit of new generic drugs on pharmacy gross margin. Generics carry lower prices but have larger profit margins.

Based on the 2014 first-quarter preliminary results, Rite Aid has raised the low end of its adjusted EBITDA guidance to $1.09 billion, with the high end holding at $1.175 billion. The company said the change reflects its expectation that second-half results will be negatively impacted by lower pharmacy margin resulting from fewer generic drug introductions.

Rite Aid also has adjusted its fiscal 2014 earnings guidance to between $49 million and $189 million, or 4 cents to 19 cents per diluted share. It had previously forecast net income of $45 million to $200 million, or 4 cents to 20 cents per diluted share.

For fiscal 2014, analysts project Rite Aid's earnings at 14 cents per share, on average, with estimates running from a low of 11 cents to a high of 17 cents.

As of noon trading on Friday, Rite Aid shares were up about 5%, or 15 cents, to $3.05. 

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