Rite Aid Posts 1Q Loss Amid Acquisition Expenses

June 26, 2008 3:33:07 PM PDT
Rite Aid Corp. swung to a big first-quarter loss as it spent heavily to absorb more than 1,850 newly acquired stores and offered promotions on food and toiletries that hurt profits. The nation's third-largest drugstore chain also said Thursday that it has turned around the declining sales in the Brooks and Eckerd stores acquired last year. It is several months away from full integration.

Still, the quarterly loss was Rite Aid's fourth in a row and its shares tumbled to a 52-week low in trading Thursday, losing 40 cents, or almost 23 percent, to $1.35. Shares have traded as high as $6.51 over the past year.

After paying preferred stock dividends, Rite Aid's loss totaled $162.8 million, or 20 cents a share, compared with a profit of $19.5 million, or 4 cents a share, in the same period a year earlier.

Complete integration and remodeling of the acquired stores is expected by October, and Rite Aid converted all of the Brooks and Eckerd store systems during the quarter, Rite Aid said.

"While the business environment remains challenging, we expect that completing the minor remodels, sales turning positive in the acquired stores and new pharmacy and front-end initiatives will contribute significantly to strong results in the second half of the fiscal year," said Rite Aid's Chairman and CEO Mary Sammons.

Revenues rose to $6.61 billion from $4.46 billion a year earlier. The 2007 figure was before it acquired the Brooks and Eckerd stores.

Analysts surveyed by Thomson Financial predicted a loss of 9 cents on revenue of $6.68 billion.

The Camp Hill, Pa.-based company said cash flow increased, as did gross pharmacy margins.

However, promotions of food and toiletries hurt margins of goods sold in departments outside the stores pharmacies.

It also listed about $160 million in expected charges from the acquisition, and it spent about $32 million more to close 68 stores.

Goldman Sachs analysts wrote that it is unlikely Rite Aid's cash flow will improve much in the near-term while the company works to refurbish its stores under a heavy debt burden.

For fiscal 2009, Rite Aid confirmed its previous guidance, saying it expects to lose between $260 million and $375 million, or 34 cents to 48 cents per share, with revenue ranging between $26.7 billion and $27.2 billion. Rite Aid now operates about 5,000 stores in 31 states and Washington, D.C.