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RAD's 3Q Improves, Revises Guidance - Analyst Blog

Drugstore chain operator Rite Aid Corp. ( RAD ) posted a net loss of approximately $52 million in the third quarter of fiscal 2012 marking an improvement from a loss of $79.1 million in the year-ago period.

The quarterly loss per share of 6 cents not only improved from the prior-year loss of 9 cents but also outpaced the Zacks Consensus Estimate loss of 12 cents. Growth in same-store sales and reduced selling, general & administrative (SG&A) expenses had a positive influence on the recent results.

Quarterly Details

Rite Aid's revenues came in at $6,312.6 million for the quarter compared with $6,202.4 million in the prior-year period. The marginal increase of 1.8% was mostly attributable to growth in same-store sales, partially offset by store closings. Same-store sales for the quarter showed an increase of 2%. Total revenue beats the Zacks Consensus Estimate of $6,278 million.

Pharmacy same-store sales inched up 2.9%, despite the negative impact of 163 basis points from the introduction of new generic drugs. Rite Aid's pharmacy sales growth was primarily driven by successful execution of its flu immunization program and wellness+ loyalty program.

Prescriptions filled at comparable stores inched up 0.5% from the year-ago quarter. Front-end same-stores sales remained flat in the quarter.

Other than prescription drugs, Rite Aid sells a wide assortment of other merchandise, termed as "front end" products, including over-the-counter medications, health and beauty aids, personal care items and cosmetics.

Rite Aid's gross profit edged up 1.8% year over year to $1671.4 million while gross margin improved by 2 basis points to 26.48%. SG&A expenses as a percentage of sales contracted by 36 basis points to 25.08%, mainly owing to cost containment measures from management.

The company recorded a 32.1% decrease in lease termination and impairment charges to $11.5 million, primarily driven by lower store closures in the reported quarter. Rite Aid reported adjusted EBITDA of $221.5 million compared with an adjusted EBITDA of $212.5 million in the prior-year quarter.

Balance Sheet and Cash Flow

At the end of the quarter, Rite Aid had cash and cash equivalents of $148.5 million and long-term debt of $6,172.6 million. During the quarter, the company deployed $4.4 million toward debt repayment and $67.5 million toward capital expenditure.

In fiscal 2012, the company expects to incur capital expenditure of $250 million, mostly on store remodels and prescription file buys.

Guidance

Going forward, Rite Aid expects fiscal 2012 revenue to be between $25.85 billion and $26 billion based on same-store sales increase of 1.15% to 1.75%. Currently, net loss is expected to be in the range of $325 million to $440 million (or 37 cents to 50 cents per share) instead of $345 - $495 million (or 40 cents to 56 cents per share), forecasted earlier.

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 Walgreen Co. ( WAG ) and CVS Caremark Corporation ( CVS ).

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.

CVS CAREMARK CP ( CVS ): Free Stock Analysis Report

RITE AID CORP ( RAD ): Free Stock Analysis Report

WALGREEN CO ( WAG ): Free Stock Analysis Report

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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