Rite Aid's fiscal 2010 fourth-quarter revenues down 3.6%

Rite Aid CorporationMar 31 2010

Rite Aid Corporation (NYSE: RAD) today reported financial results for the fourth quarter and fiscal year ended February 27, 2010.

“But our team did a good job of improving front end margins and holding tight on expenses. Thanks to our working capital initiatives, we moved into the new fiscal year with a strong liquidity position.”

For the fourth quarter, the company reported revenues of $6.5 billion, a net loss of $208.4 million or $0.24 per diluted share and adjusted EBITDA of $205.1 million or 3.2 percent of revenues. Results were negatively impacted by lower sales and continued pressure on pharmacy margins resulting from less profit on new generics and a significant reduction in reimbursement rates. An improvement in front end margin and good SG&A cost control were not enough to offset the decline in pharmacy margin.

"It was a difficult quarter with continued weak consumer demand, a weaker cough cold and flu season than last year and continued pressure on pharmacy reimbursement," said Mary Sammons, Rite Aid chairman and CEO. "But our team did a good job of improving front end margins and holding tight on expenses. Thanks to our working capital initiatives, we moved into the new fiscal year with a strong liquidity position."

Fourth Quarter Summary

Revenues for the 13-week fourth quarter were $6.5 billion versus revenues of $6.7 billion in the prior year fourth quarter. Revenues decreased 3.6 percent, primarily as a result of store closings and a decline in same store sales.

Same store sales for the quarter decreased 2.4 percent over the prior year 13-week period, consisting of a 2.6 percent decrease in the front end and a 2.4 percent decrease in the pharmacy. Pharmacy sales included an approximate 202 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores decreased 1.7 percent over the prior year period. Prescription sales accounted for 66.6 percent of total drugstore sales, and third party prescription revenue was 96.0 percent of pharmacy sales.

The fourth quarter net loss was $208.4 million or $0.24 per diluted share compared to last year's fourth quarter net loss of $2.3 billion or $2.67 per diluted share, which included significant non-cash charges related to goodwill impairment, store impairment and an additional tax valuation allowance against deferred tax assets. Without these non-cash charges, last year's fourth quarter net loss was $116.9 million or $0.14 per diluted share.

Adjusted EBITDA (which is reconciled to net loss on the attached table) was $205.1 million or 3.2 percent of revenues for the fourth quarter compared to $270.5 million or 4.0 percent of revenues for the like period last year. As previously disclosed, adjusted EBITDA for the prior year fourth quarter reflects a $9.1 million reclassification of accounts receivable securitization fee as interest expense to make it comparable to the current period.

In the fourth quarter, the company opened 1 store, relocated 1 store, remodeled 1 store and closed 22 stores. Stores in operation at the end of the fourth quarter totaled 4,780.

Full Year Results

For the 52-week fiscal year ended February 27, 2010, Rite Aid had revenues of $25.7 billion as compared to revenues of $26.3 billion for the 52-week prior year. Revenues declined 2.4 percent, primarily driven by 121 net fewer stores and a decline in same store sales.

Same store sales for the year decreased 0.9 percent over the prior 52-week comparable period. This decrease consisted of a 2.9 percent front-end same store sales decrease and a 0.1 percent increase in pharmacy same store sales. The number of prescriptions filled in same stores increased 0.8 percent. Prescription sales accounted for 67.9 percent of total revenue, and third party prescription revenue was 96.2 percent of pharmacy sales.

Net loss for fiscal 2010 was $506.7 million or $0.59 per diluted share compared to last year's net loss of $2.9 billion or $3.49 per diluted share, which included significant non-cash charges related to goodwill impairment, store impairment and an additional tax valuation allowance against deferred tax assets that accounted for $2.2 billion or $2.70 per diluted share. Excluding these significant non-cash charges, last year's net loss would have been $640 million or $0.79 per diluted share. Contributing to this year's net loss were lower same store sales impacted by a continued weak economy and lower pharmacy margin partially offset by a decrease in SG&A expense.

As computed on the attached table, adjusted EBITDA of $925.0 million or 3.6 percent of revenues for the year compared to $991.1 million or 3.8 percent of revenues for last year. As previously disclosed, adjusted EBITDA for the prior year reflects a $26.1 million reclassification of accounts receivable securitization fees as interest expense to make it comparable to the current period.

For the year, the company opened 17 new stores, relocated 41 stores, remodeled 8 stores and closed 138 stores. Stores in operation at the end of the year totaled 4,780.

Outlook for Fiscal 2011

The company's outlook for fiscal 2011 is based on current trends, a continued weak economy with high unemployment and the impact of the investment Rite Aid is making in its new customer loyalty program.

Rite Aid said it expects sales to be between $25.2 billion and $ 25.6 billion in fiscal 2011 with same store sales expected to range from a decrease of 1.0 percent to an increase of 1.0 percent over fiscal 2010.

Adjusted EBITDA (which is reconciled to net loss on the attached table) is expected to be between $875 million and $975 million.

Net loss for fiscal 2011 is expected to be between $355 million and $570 million or a loss per diluted share of $0.41 to $0.65. Capital expenditures are expected to be approximately $250 million.