Rite Aid restates earnings for 3 previous fiscal years

Profit was somewhat less than reported for 1999, 1998, but more for 1997


June 02, 1999|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

Rite Aid Corp. of Camp Hill, Pa., said yesterday it restated earnings for fiscal year 1999 and two prior years after federal regulators reviewed the third-largest U.S. drugstore chain's accounting practices related to a spate of acquisitions. Fiscal 1999 earnings were lowered by 9 percent, 1998 earnings were cut by 3.3 percent and 1997 earnings were raised slightly.

The review by the Securities and Exchange Commission -- which began after Rite Aid filed documents with the agency in December for a $650 million debt offering -- sparked the restated earnings for 1997 and 1998.

However, Rite Aid's board of directors initiated the 1999 audit, Karen Rugen, a company spokeswoman, said yesterday.

"Based on our conversations with the SEC, they found no significant issues with 1999," she said. "It was our board and senior management who requested the audit for 1999. They wanted to err on the conservative side."

Net earnings for fiscal 1999, which ended Feb. 27, were restated to $143.7 million, or 54 cents a share, down from a previously reported $158 million, or 60 cents a share, said the company yesterday.

For 1998, net earnings were restated to $305.9 million, or $1.18 a share, from a previously stated $316.4 million, or $1.22.

For 1997, earnings before extraordinary losses increased by a penny a share to $116.7 million, or 63 cents, from the previously reported $115.4 million or 62 cents.

Those results included accounting adjustments for acquisitions, store closings or relocations, Rite Aid said.

The SEC's continuing review may result in additional adjustments, Rite Aid said. However, the company said it did not expect fiscal 2000 earnings to be affected.

A consensus estimate of 14 analysts by Zacks Investment Research estimated earnings for 2000 at $1.51 per share.

Rite Aid shares rose $1.6875 yesterday to $26.6875. Shares plunged 39 percent in March, after the company warned that earnings would miss estimates due to the costs of its aggressive expansion.

Sally H. Wallick, analyst with Legg Mason Wood Walker in Baltimore, said neither the SEC review nor the earnings restatement is out of line.

"The review relates to a registration statement for debt offering, and those sorts of filings are typically looked at by the SEC," said Wallick, who has an "outperform" rating on the company's stocks.

"This doesn't reflect badly on the company. It's simply a result of an unusual period," she said. "Rite Aid had so many significant changes going on, including a fairly major change in store strategy."

The drug-store chain has been aggressively expanding through acquisitions and store openings in recent years to keep up with larger rivals Walgreen Co. and CVS Corp. The company has outlined an ambitious store opening and remodeling program that entails more stores that are larger and free standing.

"These kinds of activities require a company to make a lot of assumptions up front," Wallick said. "Sometimes estimates made with the best information possible may turn out not to be the best estimates."

Rite Aid had more than 3,800 stores in more than 30 states at the end of fiscal 1999, and annual sales of $11.4 billion.

Pub Date: 6/02/99

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