(RAD) Rite Aid Narrows Loss

Leading drugstore chain operator Rite Aid Corp. (RAD) posted a net loss of $63.1 million in the first quarter of fiscal 2012 compared with a loss of $73.7 million in the year-ago period. The quarterly loss per share of 7 cents not only improved from the prior-year quarter loss of 9 cents but also outshines the Zacks Consensus Estimate loss of 12 cents. Growth in same store sales and reduced selling, general & administrative (SG&A) and interest expenses better offset the negative impact from declined gross margin due to investments made in wellness+ customer loyalty program.

Quarterly Details

Rite Aid’s revenues came in almost flat at $6,390.8 million over the prior year. Same-store sales for the quarter showed a marginal increase of 0.8%. During the quarter, the company relocated 6 stores, remodeled 3 stores and closed 10 stores bringing the total store count to 4,704 at the end of the reported quarter. Total revenue beats the Zacks Consensus Estimate of $6,175.0 million.

Pharmacy same-store sales inched up 1.1%, despite the negative impact of 145 basis points from the introduction of new generic drugs. Prescriptions filled at comparable stores increased 0.4% from the year-ago quarter. Front-end same-stores sales remained flat over the year-ago period. Other than prescription drugs, Rite Aid sells a wide assortment of other merchandise, which it terms as “front end” products, including over-the-counter medications, health and beauty aids, personal care items and cosmetics.

Rite Aid’s gross profit inched down 1.2% year over year to $1690.9 million as gross margin dropped by 30 basis points to 26.5%. SG&A declined 2.3% year over year to $1,586.2 million, mainly due to management’s cost containment initiatives.

The company recorded a 27.0% increase in lease termination and impairment charges to $17.1 million, primarily driven by higher store closures in the reported quarter. Rite Aid reported adjusted EBITDA of $262.9.million compared with an adjusted EBITDA of $249.8 million in the prior-year quarter.

Balance Sheet and Cash Flow

At the end of the quarter, Rite Aid had cash and cash equivalents of $230.6 million and long-term debt of $6,170.6 million. During the quarter, the company deployed $385.9 million toward debt repayment and $56.8 million toward capital expenditure.

In fiscal 2012, the company expects to incur capital expenditure of $300 million mostly on store remodels and prescription file buys.

Guidance and Zacks Consensus

Looking ahead, Rite Aid expects fiscal 2012 revenue to be between $25.7 billion and $26.1 billion based on same-store sales increase of 0.5% to 2.0%. Net loss is now expected to be in the range of $370 million to $560 million (or 42 cents to 64 cents per share). The Zacks Consensus Estimate for fiscal 2012 is currently pegged at a loss of 54 cents a share.

The company competes with retail drugstore chains, independently owned drugstores, supermarkets, mass merchandisers, discount stores, dollar stores, and mail order pharmacies. Competitive pressure in the industry is unlikely to subside with continued consolidation, new store openings, and increased mandatory mail orders. The company’s direct competitors are Walgreen Co. (WAG) and CVS Caremark Corporation (CVS).

Currently, Rite Aid maintains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Moreover, we retain a long-term ‘Underperform’ recommendation on the stock.

CVS CAREMARK CP (CVS): Free Stock Analysis Report

RITE AID CORP (RAD): Free Stock Analysis Report

WALGREEN CO (WAG): Free Stock Analysis Report

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