Rite Aid expecting $67.9 million loss

Store closings, relocations blamed, as is cost of PCS deal

Retailing

October 12, 1999|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Rite Aid Corp. said yesterday that it expects a $67.9 million second-quarter loss, which the drugstore retailer blamed on store closings and relocations and on rising interest costs stemming from its January acquisition of PCS Health Systems Inc.

In preliminary, unaudited financial results for the quarter that ended Aug. 28, the company said it lost 26 cents per fully diluted share.

The loss reflects pre-tax charges of about $34 million related to the costs of closing or relocating 106 stores during the quarter, Rite Aid said.

The company also said its interest costs increased by $49 million, mostly because of its financing of the PCS acquisition and higher working capital needs.

Shares of Rite Aid fell 20 percent to $10 yesterday.

Rite Aid reported revenue of $3.5 billion, a 16.6 percent increase, for the quarter.

Weak sales of general merchandise and seasonal items and poor performance of West Coast stores hurt overall nonpharmacy drugstore sales, which fell 3.5 percent.

"Part of our problem was we had a reduced summer season," Martin Grass, Rite Aid's chairman and chief executive officer, said during an analysts' conference call yesterday.

"We had a lot of liquidation going on and lost a lot in terms of comparable sales because of soft general merchandise sales."

He said the company is negotiating to sell between 200 and 350 of its 1,000 stores on the West Coast, where sales are weakest.

That number includes larger format stores as well as smaller stores that would pull Rite Aid completely out of some markets, Grass said.

"Some parties have expressed interest in multiple stores," Grass said. "We've had a tremendous amount of ongoing dialogue with potential buyers as late as Friday night.

"We are working diligently to address our near-term liquidation over the next few weeks to de-leverage the balance sheet between now and the end of the fiscal year."

That might also include the outright sale of PCS, the wholly owned pharmacy-benefits-management subsidiary bought for $1.5 billion, Grass said, re-confirming comments he first made a week ago.

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