Rite Aid cutting staff

Drug chain fires 330, some at Hunt Valley

Retailing

September 25, 1999|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Rite Aid Corp. is cutting 330 corporate and field staff jobs -- including some positions at a computer center in Hunt Valley -- in a move to trim overhead expenses, the drugstore retailer said yesterday.

About half the layoffs are in the greater Harrisburg, Pa., area -- the company's headquarters -- with none planned for its Harford County distribution center in Perryman, a company spokeswoman said yesterday. The company would not disclose the number of layoffs at Hunt Valley.

Rite Aid said the firings, most of which were effective yesterday, would save about $20 million a year -- about 7 cents a share -- after taxes. The company, which has about 85,000 employees, said it will offer the laid-off workers severance packages and outplacement support.

The announcement capped a tumultuous week for Rite Aid. A day earlier, Rite Aid's stock plunged as much as 19 percent after Florida sued the chain, alleging that it overcharged thousands of customers.

Shares of Rite Aid fell $1 yesterday, to close at $11. Shares were trading at $50 in January.

Rite Aid also said Thursday that it will close its Ogden, Utah, distribution center by midyear 2000 -- laying off 500 employees -- and handle its West Coast distribution from a new facility in Lancaster, Calif. More than 75 percent of 450 stores served by the Ogden plant are in Southern California, said Sarah Datz, a spokeswoman.

The most recent round of layoffs does not affect any of the chain's 3,800 stores, Datz said. The $13 billion company is eliminating some field staff support -- such as store merchandising teams -- as well as corporate jobs across the board, Datz said.

"The chain drugstore industry is extremely competitive, and we must constantly seek to improve our cost structure," Martin Grass, chairman and chief executive officer, said in a statement yesterday. "Our staff overhead expenses have started to grow at a rate faster than our business can support.

Grass said Rite Aid hopes to maximize store performance and improve the chain's return on capital.

The company has struggled over the past year, reporting a 39-percent drop in fiscal fourth-quarter earnings in March. Rite Aid attributed the decrease to store openings.

Three months later, Rite Aid restated its last three years of earnings after its accounting practices were reviewed by the Securities and Exchange Commission.

In recent weeks, rumors have cropped up about the possibility of the No. 3 U.S. drugstore chain selling the chain to potential buyers such as Wal-Mart Stores Inc. or Safeway Inc.

Rumors surfaced after Rite Aid postponed a Sept. 2 meeting with analysts because of "discussions involving possible corporate transactions that, if consummated, would be material." Since then, Rite Aid shares have lost nearly half their value.

The company said yesterday that it is continuing those discussions.

But one analyst brushed off the Wal-Mart and Safeway speculation as "nonsense."

"Safeway isn't a drugstore, nor is Wal-Mart," said Mark Husson, an analyst with Merrill Lynch Global Securities in New York, adding that despite the stock price drop, those retailers would be less likely to buy a drugstore chain with Rite Aid's problems. "You don't get into this business on the cheap. That's nonsense."

It would be as unlikely for major drugstore rivals, such as CVS Pharmacy or Walgreen Co., to go after Rite Aid because of store overlap, he said.

"Rite Aid wouldn't sell itself until it was ready," Husson said. "Rite Aid isn't in as bad trouble as the stock price would have us believe. The market is just panicked. The shares are oversold."

Panic was sparked primarily by the charges Wednesday, he said.

The Florida attorney general's office charged the company with deceptive trade practices, civil theft and racketeering in a filing in Tallahassee Circuit Court.

Rite Aid was accused of billing customers different prices for the same prescription drugs and charging patients without medical insurance in emergency rooms more than it charged patients with insurance.

"Not one customer was ever deceived or defrauded," Datz said. "We are confident we will prevail. Charging prices based on quantity is common in any retail business."

Pub Date: 9/25/99

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