Rite Aid Corp. (RAD)
F1Q11 (Qtr End 05/29/2010) Earnings Call
June 23, 2010 8:00 a.m. ET
Matt Schroeder - Group VP, Strategy and IR
Mary Sammons - our Chairman and CEO
John Standley - President and COO
Frank Vitrano - CFO and CAO
Chris Hall - SVP, Pharmacy Business Development
Emily Shanks - Barclays Capital
Karru Martinson - Deutsche Bank
Ed Kelly - Credit Suisse
Mark Wiltamuth - Morgan Stanley
Carla Casella - JPMorgan
Neil Currie - UBS
Bryan Hunt - Wells Fargo Securities
At this time, I'd like to welcome everyone to Rite Aid first quarter fiscal 2011 conference call. (Operator Instructions)
I'd now like to turn the call over to Matt Schroeder.
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On today's call, Mary will give an overview of our first quarter results. John will discuss our business. Frank will discuss the key financial highlights in fiscal 2011 outlook. And then we will take questions.
As we mentioned in our release, we are providing slides related to the material we will be discussing today on our website, www.riteaid.com, under the Investor Relations information tab for conference calls. We will not be referring to them directly in our remarks, but hope you'll find them helpful as they summarize some of the key points made on the call.
Before we start, I'd like to remind you that today's conference call includes certain forward-looking statements. These forward-looking statements are made in the context of certain risks and uncertainties that can cause results to differ.
Also, we will be using a non-GAAP financial measure. The definition of the non-GAAP financial measure, along with the reconciliations to the related GAAP measures, is described in our press release. I would also encourage you to reference our SEC filings for more detail.
With these remarks, I'd now like to turn it over to Mary.
Thanks for joining us today as we review our results for the first quarter fiscal 2011. As you can see from our release, our team did a good job of continuing to weather the economic storm that is impacting the sales of most retailers.
By reducing costs and operating more efficiently, we more than offset the decline in sales and margins. We increased adjusted EBITDA as a percent of sales, while at the same time improved customer satisfaction ratings on both the front-end and in the pharmacy.
Our liquidity is the strongest it's been in several years with more than $1.2 billion at quarter-end. This enables us to continue to withstand an economy that doesn't appear to be headed towards a solid recovery anytime soon. At the same time, the strong liquidity position allows us to continue to invest in initiatives designed to grow our business. We made great progress on many of those initiatives in the first quarter.
And in a moment, John Standley will update you on what we've accomplished. But before I ask him to do so, I would like to say a few words about John who later today become Rite Aid's new CEO.
I asked John to return to Rite Aid almost two years ago, because I believed he had the right blend of operational knowledge, hands-on management and financial orientation to help us navigate through this difficult recession and bring stability to our company. He has led the charge in making us a more efficient operation in all areas of the company. And as a result, we are much stronger today than a year ago.
At the same time, he and his team put in place multiple initiatives to improve our results as we continue to operate, as I said before, in one of the toughest retail environments in recent history.
It's been a smooth and easy transition, especially since John and I had already worked closely together 12 years ago at Fred Meyer and then worked even more closely when we both came to Rite Aid in December 1999 as part of the new executive management team. I look forward to continuing to work with him in my role as Chairman.
Now, I'd like to turn the call over to John.
Thank you, Mary, for those kind remarks. As today is Mary's last day as Rite Aid's CEO, on behalf of Rite Aid's almost 100,000 associates across the country, I would like to thank Mary for her many contributions to our company in the last 10-1/2 years. Without her, I don't think we'd have a company today.
We're fortunate that she has agreed to stay on as Chairman of the Board, so Rite Aid can benefit from her experience and counsel. And I look forward to continuing the strong working relationship we've enjoyed for so many years.
Turning to the quarterly results, we held our ground this quarter from an earnings perspective in a challenging economic environment, and we made significant progress with some of our key initiatives that we believe will provide us the sales momentum in the second half of the year.
Before I give an update on the progress of our initiatives, I will mention a few key points about the quarterly results. And Frank will go through the results in more detail in just a few minutes.
We had positive front-end comps for the combined March-April months, but they're offset by May's decline. June month to date sales, however, are improving from May results, but are still behind last year. We had negative script count in the growth of 90-day scripts in the quarter, which is about half of our decline. We had some impact from the maturation of the Rx Savings Card, and we are cycling some H1N1 benefit in the prior year.
The year-over-year decline in pharmacy margin as a percent of pharmacy sales was 97 basis points better from the last quarter, which is a nice improvement.
We saw significant reduction in adjusted EBITDA SG&A with a 35 basis point improvement as a percent of sales or $55 million compared to last year's first quarter. Our distribution expenses were 1.44% of sales, our best results in recent years. We earned adjusted EBITDA of $249.8 million, which was slightly better than last year.