Rite Aid stock off 32%

Chain tells investors to ignore forecasts by former CEO

Drugstores

November 11, 1999|By Kristine Henry | Kristine Henry,SUN STAFF

Shares of Rite Aid Corp. skidded 32 percent yesterday after company officials announced that investors should disregard financial projections made last month by the drugstore chain's then-chairman and chief executive officer.

Shares of Rite Aid lost $2.5625 to close at $5.375, a 52-week low. Since January, Rite Aid shares have shed 89 percent of their value as the nation's No. 3 drugstore chain has been rocked by a series of financial setbacks and revelations.

Yesterday's statement concerned comments made by Martin L. Grass during an Oct. 11 conference call with analysts. Grass, who was ousted Oct. 18, said he expected the company's cash flow to be $1.01 billion for fiscal year 2000, which ends in February. He also predicted cash flow of $1.267 billion and $1.46 billion for the next two years, respectively.

"We're advising people that they cannot rely on the guidance given related to cash flow at the Oct. 11 meeting," said Karen Rugen, a Rite Aid spokeswoman.

Company officials also canceled yesterday's scheduled conference call that was intended to go over Rite Aid's second-quarter earnings, which were released Nov. 2.

Rugen said the company did not have enough information about the report to discuss it with analysts. Analysts said yesterday's announcement reinforced concerns about the company's future.

"It's just a continuation of signals that they don't have their business under control," said Steven J. Valiquette, an analyst at Warburg Dillon Read LLC in New York.

"It does signal for me that if they have negative operating cash flow in store operations, then it does intensify the risk factor of bankruptcy, but there's so much speculation that nobody knows," he said. "If people were worried before, this is not going to help."

Rite Aid's woes have been mounting as it struggled to integrate the purchase of a large West Coast chain and was sued by the Florida attorney general on charges of overcharging elderly customers.

The situation came to a head last month, when Rite Aid announced Grass' resignation. At that time, it also revealed that "aggressive" accounting practices would force it to restate earnings for the past three years to the tune of $500 million.

Last week Rugen told The Sun that the Securities and Exchange Commission's enforcement division had contacted the company and that the company expected an investigation.

She said yesterday that the situation has not changed. "There is no formal investigation going on that we're aware of," she said. "But with the size of the restatement, one could be anticipated."

In a Nov. 2 filing with the SEC, Rite Aid disclosed it paid $43 million in October to renegotiate its loans and get a one-year extension on $1.6 billion of its debt.

The chain also agreed to pay J. P. Morgan & Co., its financial adviser, $2 million per month in service fees for one year. Rite Aid also granted Morgan warrants to buy 2.5 million shares of its stock at $11 a share.

Rite Aid, headquartered in Camp Hill, Pa., also reported in the filing a smaller-than-projected loss of $15.4 million -- 6 cents per diluted share -- for its second quarter, which ended Aug. 28.

Earlier, it had forecast a second-quarter loss of $67.9 million, or 26 cents per fully diluted share.

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