Rite Aid Corporation (RAD)

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Rite Aid (RAD)

Q4 2011 Earnings Call

April 07, 2011 8:30 am ET

Executives

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

John Standley - Chief Executive Officer, President and Director

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

Analysts

Edward Kelly - Crédit Suisse AG

Karen Eltrich - Goldman Sachs

Mary Gilbert - Imperial Capital

John Heinbockel - Goldman Sachs

Mark Wiltamuth - Morgan Stanley

Emily Shanks - Lehman Brothers

Matthew Fassler - Goldman Sachs Group Inc.

Carla Casella - J.P.

Presentation

Operator

Good morning. My name is Leah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rite Aid Fourth Quarter Fiscal 2011 Conference Call. [Operator Instructions] Matt Schroeder, you may begin your conference.

Matt Schroeder

Thank you, Leah, and good morning, everyone. We welcome you to our fourth quarter year-end 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 fourth 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 in 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 10K and other documents we file or furnish to the Securities and Exchange Commission. Also, we will be using a non-GAAP financial measure. The definition of the non-GAAP financial measure, along with the reconciliations to the relating 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 fourth quarter results and discuss our fiscal 2012 guidance. We made a lot of progress in the fourth quarter on our key initiatives, and they're clearly starting to have an impact on our results.

During the fourth quarter, we saw a significant improvement in sales trends with same store front-end sales, same store pharmacy sales and script count growing during the quarter. Front-end same store sales grew 1%, and pharmacy same store script count grew 80 basis points. Same store script count continued to grow in March with an increase of 60 basis points, while front-end same store sales turned negative, mostly due to the impact of a later Easter holiday. Both those trends continued in the first part of April.

Customers continued their search for value during the quarter as our private brand penetration increased to 16.5% from 15.4% last year. We continued the rollout of our new private brand architecture and now have over 1,000 items converted. We are on track to have 2,200 items in these brands in fiscal 2012.

Adjusted EBITDA increased $10.3 million to $215.4 million this year versus $205.1 million in last year's fourth quarter. Although our investments and our sales growth initiatives reduced fourth quarter front-end gross margin, our good cost control and higher pharmacy margin helped us grow adjusted EBITDA.

Pharmacy margin was up due to strong generic penetration, generic purchasing improvements and a more stable but still difficult reimbursement rate environment. Adjusted EBITDA SG&A declined 30 basis points as a percent of sales due in large part to another great effort from our store teams. Liquidity remains strong with more than $1 billion of revolving credit available at fiscal year-end.

Just after year-end, we completed a refinancing of a proportion or our term loan facility, which reduces our interest expense and extends the maturity. Frank will take you through the financial results in more detail in a few minutes. During the quarter, wellness+ continued to gain traction and combined with a late flu season were the significant factors contributing to our fourth quarter same store sales growth.

As of today, we have over 36 million members enrolled in wellness+. Wellness+ members accounted for 67% of front-end sales and 58% of our script count during the quarter. In addition, members continued to have larger basket sizes than non-members. And among members, Gold and Silver members have higher basket sizes and frequency than our Plus members. In the pharmacy, we continued to see a much higher retention rate with members versus non-members, and members are a very high percentage of our best patients.

Our segmentation initiatives also continued to bear fruit. Both our Save-A-Lot Rite Aid stores and the Rite Aid value stores continued to show solid sales gains, and we continue to have discussions with SUPERVALU about the future potential of the Save-A-Lot Rite Aid stores.

Read the rest of this transcript for free on seekingalpha.com