September 25, 2008 / 4:10 PM / 10 years ago

UPDATE 3-Rite Aid Q2 loss widens; sees bigger FY09 loss

(Adds analysts’ comments in paragraph 8-9, 22-23)

BANGALORE, Sept 25 (Reuters) - Rite Aid Corp (RAD.N), the No. 3 U.S. drugstore chain, posted a wider quarterly loss, hurt by certain charges and lower sales at its acquired stores, widened its fiscal 2009 loss estimate, and announced key executive departures.

The company, which posted its fifth straight quarterly loss on Thursday, said the new outlook reflects a longer-than-expected turnaround of Brooks Eckerd pharmacy sales and the closing of underperforming stores.

“The growing uncertainty in this economy and the growing reluctance of customers to spend their dollars did taint that we tighten our belts further,” a company executive said in a conference call with analysts.

The company, which bought Brooks and Eckerd drugstores in June last year, cut its capital expenditures by about 8 percent for the fiscal year.

Rite Aid said Chief Financial Officer Kevin Twomey, Chief Operating Officer Robert Easley and Chief Administrative Officer Pierre Legault resigned to pursue other opportunities.

The company named John Standley COO and president, and appointed Frank Vitrano to the combined role of CFO and chief administrative officer, effective immediately.

Both Standley and Vitrano were previously with Pathmark Stores Inc, Rite Aid, whose stores fill prescriptions and sell health and beauty aids, convenience foods and greeting cards, said in a statement.

The management changes seem to address the difficulties and offer a glimmer of hope, but “hope is not an investment strategy, and it will be difficult for them (new COO and CFO) to orchestrate a turnaround more rapidly than their predecessors,” Banc of America Securities analyst Bob Willoughby said.

Willoughby cut his price target to $1 from $1.50 on the stock but maintained a “neutral” rating for want of evidence of the company’s ability to drive cash flow higher.

The company generated positive cash flow of $96.1 million from operations in the second quarter.


Rite Aid posted a net loss of $222 million, or 27 cents a share, for the second quarter ended Aug. 30. It reported a loss of $69.6 million, or 10 cents a share, a year earlier.

The latest quarter included refinancing expenses of $36.2 million and an increase of $35.2 million in store closing and impairment charges, among others.

Revenue at the company, which competes with larger rivals like Walgreen Co WAG.N and CVS Caremark Corp (CVS.N), was nearly flat at $6.50 billion.

Analysts on average expected a loss of 15 cents a share, before special items, on revenue of $6.52 billion, according to Reuters Estimates.

Total same-store sales were up 0.6 percent while Brooks Eckerd same-store sales fell 4.1 percent during the quarter. Excluding Brooks Eckerd stores, same-stores sales rose 3.1 percent.

The company said the integration of Brooks and Eckerd drugstores is expected to be completed by Sept. 30.

Rite Aid, which operated 4,930 stores at the end of the second quarter, said it closed 83 stores in the quarter.


For fiscal 2009, Rite Aid now expects to post a loss of 56 cents to 67 cents a share, compared with its earlier loss forecast of 39 cents to 52 cents a share.

The company expects sales of $26.0 billion to $26.5 billion, and a 1.5 percent to 3.0 percent rise in same-store sales for the year. It had earlier forecast sales of $26.7 billion to $27.2 billion, and same-store sales rise of 2 percent to 4 percent.

Analysts on average were expecting a loss of 51 cents a share before items, on revenue of $26.64 billion, for the year.

Rite Aid said its September sales continue to show positive trends in both the acquired and core stores, and it expects total same-store sales in the acquired stores to turn positive in the third quarter.

“We anticipate sales to remain highly promotional and impact the company’s results for the remainder of the year,” UBS analyst Neil Currie wrote in a note to clients.

Despite risky fundamentals, Currie rates Rite Aid a “buy” due to intrinsic value of its stores and prescription files. He has a price target of $4 on the stock.

The Camp Hill, Pennsylvania-based retailer now sees capital expenditures of about $550 million for the year, excluding proceeds from certain sale and leaseback transactions, which is expected to be about $200 million.

The company’s shares were 4 percent lower at 92 cents in afternoon trade Thursday. They have lost more than 80 percent of their value over the past year. (Reporting by Dilipp S. Nag in Bangalore; Editing by Amitha Rajan, Deepak Kannan)

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