Drugstore chain operator,
Rite Aid Corp.
), posted second-quarter 2012 loss per share of 5 cents, which
bettered both the prior-year loss of 11 cents a share as well as
the Zacks Consensus Estimate of a loss of 8 cents a share. The
company's results mainly benefited from seven straight quarters of
improved adjusted EBITDA and same store prescription count.
However, this was offset by lower LIFO, store closing &
impairment and depreciation & amortization charges.
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Rite Aid's revenue of $6,230.9 million declined 0.7% compared with
$6,271.1 million in the prior-year period. The dip in revenue was
attributed to the decline in pharmacy same store sales as well as
store closings. However, total revenue edged past the Zacks
Consensus Estimate of $6,200 million. Same-store sales for the
quarter remained flat compared to the year-ago period, driven by a
rise in front-end sales offset by lower pharmacy sales.
During the second quarter, front-end sales improved 1.4%, while
Pharmacy sales decreased 0.7%. Pharmacy sales included a 750 basis
points negative impact from the introduction of new generic drugs.
Besides, prescriptions filled at comparable stores increased 4.0%
from the year-ago quarter. Prescription sales made for about 67.5%
of total drugstore sales, while third party prescription revenue
was 96.5% of pharmacy sales.
Rite Aid's gross profit elevated 3.7% year over year to $1,710.4
million, with gross margin expanding 120 bps to 27.5%. SG&A
expenses as a percentage of sales expanded by 40 bps to 26.0%.
Rite Aid reported adjusted EBITDA of $218.7 million compared with
an adjusted EBITDA of $184.3 million in the prior-year quarter,
primarily due to higher front-end sales, favorable script trends
and increased Pharmacy gross margin.
Balance Sheet and Cash Flow
At quarter-end, Rite Aid had cash and cash equivalents of $94.3
million and long-term debt of $5,829.6 million. The company ended
the second quarter with $1.151 billion of liquidity, including $102
million of invested cash. There was no borrowing outstanding under
its revolver credit facility while the company had $125 million of
outstanding letters of credit. The company used $32.9 million of
cash flow for operating activities.
As of September 1, 2012, Rite Aid operated about 4,643 stores. As
of quarter-end, the company relocated 4 stores, remodeled 147
stores and closed 9 stores. During the quarter, the company
completed wellness remodels at about 570 stores.
Rite Aid lowered its fiscal 2013 revenue forecast to range from
$25.1 billion - $25.4 billion based on same-store sales ranging
from a decline of 1.0% to an increase of 0.25% year over year. The
lowered sales and comps guidance is mainly due to projected
negative impact of 650 basis points in the new generic
introductions on pharmacy same store sales.
However, Rite Aid upped the lower end of its 2013 adjusted EBITDA
forecast, bringing the guidance to $950 - $1.025 billion.
Currently, net loss is expected to be in the range of $965 - $1,025
million. The company now guides net loss in the $69 million - $196
million range, with loss per share ranging between 9 cents to 23
In fiscal 2013, the company expects to incur capital expenditure of
$300 million, mostly on store remodels and prescription file buys.
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
CVS Caremark Corporation
Currently, Rite Aid maintains a Zacks #2 Rank, which translates
into a short-term Buy rating. However, we retain a long-term
Neutral recommendation on the stock.