Retail News Breaks
Rite Aid's outlook gets upgraded
July 15th, 2009
NEW YORK – Standard & Poor's Ratings Services has raised its outlook on Rite Aid Corp. to stable from negative, citing the drug store chain's efforts to buttress its liquidity.
"The rating action follows Rite Aid's successful refinancing of the bulk of its 2010 debt maturities, including a new $1 billion asset-based revolving credit facility, thereby improving its liquidity position and enhancing financial flexibility," S&P credit analyst Ana Lai said in a statement. She described the chain's liquidity as "adequate."
Also on Tuesday, S&P affirmed its ratings on Rite Aid, including a B- corporate credit rating, which is below investment grade.
Last month, Fitch Ratings also upgraded Rite Aid's outlook to stable from negative after the chain announced progress in its refinancing plan.
"Further, Rite Aid's operating performance remains adequate," S&P's Lai explained, "and we expect cash flow generation to improve due to operating initiatives to reduce inventory and capital spending cuts, resulting in good levels of positive free cash flow."
She pointed to a 0.6% gain in same-store sales that Rite Aid reported for its fiscal 2010 first quarter, as well as stable EBITDA (earnings before interest, taxes, depreciation and amortization) and free cash flow improving to $315 million from negative $252 million due to reduced inventory purchases and capital outlays.
Also in the quarter, Rite Aid exceeded Wall Street's expectations by posting a smaller loss on a slight decline in revenue. Expenses from the refinancing, however, led the Camp Hill, Pa.-based company to lower its fiscal 2010 earnings guidance when it reported quarterly results in late June.
While Rite Aid's operating performance has stabilized, the weakening U.S. economy and sharp competition could squeeze performance at its core stores and make it tougher to boost results at the acquired Brooks Eckerd stores, according to Lai.
She noted that Rite Aid's progress in turning around the operating performance of those stores "has been slower than expected" and that the retailer still carries a heavy debt burden and thin cash flow protection.
"Although not likely in the near term, we would consider revising the outlook to positive if the company is successful at turning around the Eckerd stores' performance,
thereby increasing profitability and cash flow," Lai commented.
In after-market trading, Rite Aid's shares were up 2 cents to $1.32 after closing down 4 cents to $1.30 on Tuesday.
Earlier this month, Rite Aid canceled a planned reverse stock split after regaining compliance with the New York Stock Exchange's minimum share price listing rule.
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