Rite Aid Corporation (RAD)

RAD 
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Rite Aid (RAD)

Q1 2012 Earnings Call

June 23, 2011 8:30 am ET

Executives

John Standley - Chief Executive Officer, President, Director and Member of Executive Committee

Frank Vitrano - Chief Administrative Officer, Chief Financial Officer and Senior Executive Vice President

Matt Schroeder - Group Vice President of Strategy & Investor Relations and Treasurer

Analysts

Bryan Hunt - Wells Fargo Securities, LLC

Joseph Stauff - Susquehanna Financial Group, LLLP

Edward Kelly - Crédit Suisse AG

Karru Martinson - Deutsche Bank AG

John Heinbockel - Guggenheim Securities, LLC

Steven Valiquette - UBS Investment Bank

Emily Shanks - Lehman Brothers

Karen Eltrich - Goldman Sachs Group Inc.

Justin Van Vleck - Morgan Stanley

Presentation

Operator

Good morning. My name is Tabitha, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Rite Aid first quarter earnings conference call. [Operator Instructions] Thank you. Mr. Schroeder, you may begin your conference.

Matt Schroeder

Thank you, Tabitha, and good morning, everyone. We welcome you to our first quarter conference call. On the call with me are John Standley, our President and Chief Executive Officer; and Frank Vitrano, our Chief Financial and Chief Administrative Officer.

On today's call, John will give an overview of our first quarter results and discuss our business. Frank will discuss the key financial highlights and fiscal 2012 outlook and then we will take questions.

As we mentioned on our release, we are providing slides related to the material we will be discussing today, including annual earnings and sales guidance on our website, www.riteaid.com, under the Investor Relations Information tab for conference calls. This guidance is a point in time estimate made early in the fiscal year. The company expressly disclaims any current intention to update it. This conference call and the related slides will be available on the company's website until the next earnings call, unless the company withdraws them earlier, and should not be relied upon thereafter. We will not be referring to the slides directly in our remarks but hope you will 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 actual results to differ. These risks and uncertainties are described in our press release, in Item 1A of our most recent annual report on Form 10-K and other documents we file or furnish to the Securities and Exchange Commission. Also we'll be using a non-GAAP financial measure. The definition of a non-GAAP financial measure, along with the reconciliations to the related GAAP measure, are described in our press release.

With these remarks, I'd now like to turn it over to John.

John Standley

Thank you, Matt, and thank you, everyone, for joining us this morning to review our fiscal 2012 first quarter results. Our results for the quarter show that our company-wide focus on taking better care of and meeting the needs of our customers is working. Our significant reductions in SG&A over the last 2 years have given us the flexibility to make the investments we need to connect with today's value driven consumer. We are making those investments through our wellness+ loyalty program, which continues to grow as a percentage of our business and in terms of total members enrolled. Combining wellness+ with our customer service initiatives like the 15 Minute Guarantee in the pharmacy and our focus on friendlier service on the front end are the primary reasons we have grown our same-store sales for 2 consecutive quarters.

During the first quarter, we saw continued improvements in overall sales trends, although same-store sale front -- same store front-end sales were a little negative in March and April, but were positive enough in May to get us back to even.

Same store script count and pharmacy sales were up for all 3 months of the quarter and drove a total store comp sales increase of 80 basis points.

Same-store front-end sales, script count and pharmacy sales continue to grow in June. We will be announcing June sales next Thursday.

First quarter adjusted EBITDA increased $13.1 million to $262.9 million this year versus $249.8 million last year. Very similar to last quarter and as expected, our continued investments in sales growth initiatives reduced first quarter front end gross margin but our improved operating efficiency and higher same-store revenues helped us grow adjusted EBITDA.

Pharmacy margin was flat due to strong generic penetration and generic purchasing improvements, which offset declining reimbursement rates. Distribution costs also continued to show improvement in the quarter as we benefited from synergies of the Rome warehouse consolidation.

Adjusted EBITDA SG&A declined 27 basis points due in large part to another great effort from our store teams. Liquidity remained strong with $1.2 billion of revolving credit and invested cash available at quarter end. Net loss narrowed in the quarter as we were able to offset the $22 million charge resulting from the refinancing we completed early in the quarter.

During the quarter, wellness+ continued to gain traction, as I said, and was one of the key factors contributing to our first-quarter same-store sales growth. As of today, we have close to 40 million members enrolled in wellness+. Wellness+ members accounted for 67% of front-end sales and 62% of script count during the quarter. Almost 90% of our Gold and Silver members are shopping both sides of the store, which makes them our most valuable customers. And interestingly, almost 50% of our Gold and Silver members shop our stores every week, so we're getting good frequency.

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