Rite Aid Corporation (NYSE: RAD) today reported financial results for its fiscal second quarter ended August 28, 2010.
“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”
The company reported revenues of $6.2 billion, a net loss of $197.0 million or $0.23 per diluted share and adjusted EBITDA of $181.2 million or 2.9 percent of revenues. Results were impacted by a decrease in revenues, expenses related to the company's growth initiatives and a charge related to the company's refinancing activities.
"Despite lower sales and the sluggish economy, we started to see some positive trends in our business during the second quarter. Sales in our core drugstore categories have started to strengthen, and our gross margin trends are showing improvement," said John Standley, Rite Aid president and CEO. "While reimbursement pressures are still challenging, our pharmacy margin rates have begun to stabilize.
"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," Standley said. "While the start up 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. Our continued strong liquidity and recent refinancing give us even more runway to deliver on our initiatives."
Second Quarter Summary
Revenues for the 13-week quarter were $6.2 billion versus revenues of $6.3 billion in the prior year second quarter. Revenues decreased 2.5 percent primarily as a result of store closings and a decline in same store sales.
Same store sales for the quarter decreased 1.5 percent over the prior year 13-week period, consisting of a 0.9 percent decrease in the front end and a 1.8 percent decrease in the pharmacy. Pharmacy sales included an approximate 195 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores decreased 2.1 percent over the prior year period. Prescription sales accounted for 68.1 percent of total drugstore sales, and third party prescription revenue was 96.1 percent of pharmacy sales.
Net loss was $197.0 million or $0.23 per diluted share compared to last year's second quarter net loss of $116.0 million or $0.14 per diluted share. Contributing to the net loss were lower sales and a $44.0 million or $0.05 per diluted share debt modification expense related to the retirement of the company's $648.0 million Tranche 4 term loan due 2015 under its senior secured credit facility. Retiring the loan was part of the company's previously announced August refinancing transactions that extended debt maturities and lowered interest expense.
Adjusted EBITDA (which is reconciled to net loss on the attached table) was $181.2 million or 2.9 percent of revenues for the second quarter compared to $216.5 million or 3.4 percent of revenues for the like period last year. Negatively impacting Adjusted EBITDA by approximately $26 million or $0.03 per diluted share were advertising expenses related to the company's wellness+ customer loyalty program, expenses related to the expansion of Rite Aid's immunization capabilities and the shift of Memorial Day holiday pay from the first quarter last year into the second quarter this year.
In the second quarter, the company opened no new stores, relocated 5 stores, remodeled 1 store and closed 20 stores. Stores in operation at the end of the second quarter totaled 4,747.
Other Events During the Quarter
As previously announced, Rite Aid continued to reduce debt in the second quarter with the repurchase of $93.8 million of its 8.5% convertible notes due 2015. Also as previously announced, the company completed refinancing transactions that extended debt maturities and lowered interest expense. Those transactions included a new $1.175 billion revolving credit facility due 2015 that replaced its $1.175 billion revolving credit facility due 2012 and the issuance of $650 million of 8.00% senior secured notes due 2020 used to repay and retire the company's $648.0 million Tranche 4 Term Loan due 2015 under its senior secured credit facility.
Rite Aid Lowers Sales, Narrows Adjusted EBITDA and Increases Net Loss Guidance for Fiscal 2011
Based on current trends, Rite Aid revised its fiscal 2011 outlook for sales, Adjusted EBITDA and net loss. Sales are now expected to be between $25.0 billion and $25.4 billion with same store sales expected to range from a decrease of 1.5 percent to flat. Adjusted EBITDA (which is reconciled to net loss on the attached table) is expected to be between $875 million and $950 million.
As a result of narrowing Adjusted EBITDA guidance, a $44.0 million debt modification charge for the company's recent refinancing and lower interest expense related to the company's refinancing and debt repurchase activities, net loss is now expected to be between $400 million and $590 million or a loss per diluted share of $0.46 to $0.67. The company confirmed previous guidance for capital expenditures at approximately $250 million.
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