Rite Aid To Close 200 Stores, Sell Units

January 08, 1994|By Ross Hetrick | Ross Hetrick,Staff Writer

Rite Aid Corp., the dominant drugstore chain in Maryland, yesterday said it will close 200 stores and sell four subsidiaries, including Encore Books.

The nation's largest drugstore chain, based in Camp Hill, Pa., also said it will repurchase 22 million shares of its own stock -- about a quarter of the outstanding shares.

The company operates 2,680 Rite Aids in 23 states, including 188 in Maryland.

Encore Books has 103 stores in six states, including 13 in Maryland. It had planned to open a "superstore" in Pikesville in the fall. Company spokeswoman Suzanne Mead said it was not certain how yesterday's announcement will affect the proposed Pikesville store.

In addition to Encore Books, the company plans to sell ADAP, an auto parts retailer with 95 stores; Concord Custom Cleaners, a dry cleaning chain with 170 outlets; and Sera Tec Biologicals, which has 33 plasma collection centers.

None of those subsidiaries has Maryland operations, said Lauren G. Davis, a company spokeswoman.

The company is taking the action to refocus its efforts on its core drugstore business, Ms. Mead said. "The subsidiaries were requiring increasing amounts of resources to develop."

The store closings and the sale of the subsidiaries are expected to happen in the next six months, Ms. Mead said.

The company will take an after-tax charge of $25.6 million for the anticipated loss on the sale of the nondrugstore subsidiaries. The company also will take a $149.2 million write-off for the closing of the 200 stores and the elimination of other assets.

The stock repurchase, to be done through a "Dutch auction," will start on Monday, and the repurchase price will range from $16 to $18.50 a share, the company said.

The stock market reacted favorably, pushing up the stock by $1.50 a share, or 8.8 percent, to close at $18.625 a share.

"I think its a positive move for the company," said Michael L. Mead, a regional stock analyst for Legg Mason Inc., a Baltimore stock brokerage.

Calling them a "shot in the arm," he said the moves will help revitalize the company while shedding subsidiaries that contribute only 5 percent to 6 percent of sales.

The company, which has been consistently profitable, has not been doing badly, Mr. Mead said. But the annual rate of sales growth at comparable stores has slipped from about 6 percent or 7 percent a few years ago to about 3 percent recently.

In the fiscal third quarter, which ended Nov. 27, Rite Aid's net income dropped 12.8 percent, to $23 million, or 26 cents a share, compared with $26.4 million, or 30 cents a share, a year earlier. Sales rose to $1.1 billion from $1 billion.

In the fiscal year that ended Feb. 27, the company had sales of $4.1 billion and a net income of $32.4 million, or $1.51 a share.

The company, which would not identify the stores to be closed, will try to absorb affected workers into other drugstores, Ms. Davis said. The company employs 31,000.

Rite Aid has retained Donaldson, Lufkin & Jenrette Securities Corp. to sell the four businesses and act as the dealer manager for the stock repurchase.

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