Refinancing costs and declined sales fueled a larger year-over-year loss at Rite Aid Corp. for the fiscal 2011 second quarter.


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Rite Aid turns in bigger 2Q loss

September 23rd, 2010

CAMP HILL, Pa. – Refinancing costs and declined sales fueled a larger year-over-year loss at Rite Aid Corp. for the fiscal 2011 second quarter.

The drug store chain on Thursday reported a net loss of $197 million, or 23 cents per diluted share, for the second quarter ended Aug. 28, compared with a loss of $116 million, or 14 cents per diluted shared, a year earlier.

Rite Aid's quarterly loss exceeded the consensus 16 cents per share loss forecast by financial analysts surveyed by Thomson Financial. Analyst projections ranged from a high of a 12 cents per share loss to a low of a 19 cents per share loss.

Contributing to the net loss, Rite Aid noted, were lower revenue and a $44 million debt modification expense related to the retirement of a $648 million term loan due 2015. The expense impacted second quarter diluted earnings per share by 5 cents, the company said, adding that retirement of the loan was part of August refinancing transactions that extended debt maturities and reduced interest expense.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $181.2 million for the second quarter, down from $216.5 million in the prior-year period. Rite Aid reported that adjusted EBITDA was negatively impacted by about $26 million, or 3 cents per diluted share, by advertising costs related to the wellness+ customer loyalty program, expenses from the expansion of the pharmacy chain's immunization capabilities and the shift of Memorial Day holiday pay from the first quarter last year into the second quarter this year.

On the revenue side, sales for the 13-week fiscal 2011 second quarter were $6.2 billion, down 2.5% from $6.3 billion a year earlier. Rite Aid said the decrease stemmed mainly from store closings and a 1.5% decline in same-store sales.

According to the retailer, same-store sales in the quarter reflected decreases of 0.9% in the front end and 1.8% in the pharmacy. Pharmacy sales included an approximate 195-basis-point negative impact from new generic drug introductions, and the number of prescriptions filled in same stores fell 2.1% from a year ago, the company said.

"Despite lower sales and the sluggish economy, we started to see some positive trends in our business during the second quarter," Rite Aid president and chief executive officer John Standley said in a statement. "Sales in our core drug store categories have started to strengthen, and our gross margin trends are showing improvement. While reimbursement pressures are still challenging, our pharmacy margin rates have begun to stabilize."

Standley also pointed out that Rite Aid is seeing promising early results from its business growth investments.

"As we said at the start of the year, we made the strategic decision to invest now in initiatives designed to grow our business long term, including our new wellness+ customer loyalty program and the expansion of our immunization capabilities," explained Standley. "While the startup costs of those investments have had a negative impact on our results this quarter, we're excited about the impact we're seeing so far. More than 22 million customers and patients have enrolled in wellness+ only five months after the nationwide launch. Our pharmacists have administered more flu shots this year than they did at the same time a year ago.

"At the same time, we remain focused on reducing costs and operating more efficiently," he added. "Our continued strong liquidity and recent refinancing give us even more runway to deliver on our initiatives."

During the second quarter, Rite Aid opened no new stores, relocated five stores, remodeled one store and closed 20 stores. Stores in operation at the end of the quarter totaled 4,747.

Looking ahead, Rite Aid lowered its fiscal 2011 outlook. The company now projects full-year sales of $25 billion to $25.4 billion, down from the previous forecast of $25.2 billion to $25.6 billion, with same-store sales expected to range from a decrease of 1.5% to flat.

And on the earnings side, Rite Aid expects a fiscal 2011 net loss of $400 million to $590 million, or a loss per diluted share of 46 cents to 67 cents, compared with its earlier projection of a net loss of $355 million to $570 million, or 41 cents to 65 cents per diluted share. The company said the reduced earnings outlook reflects narrowed adjusted EBITDA guidance, a $44 million debt modification charge for the recent refinancing and lower interest expense from refinancing and debt repurchase activities.

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