Better sales help Rite Aid narrow second-quarter loss

Results still far below what analysts expected

October 03, 2001|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Rite Aid Corp., the nation's third-largest drugstore chain, reported yesterday that lower interest costs, improved pharmacy sales and increased store traffic helped narrow its second-quarter loss, but the results were still significantly below what analysts had expected.

The Camp Hill, Pa.-based retailer reported a net loss of $245.9 million, or 54 cents per share, for the quarter ended Sept. 1, far worse than the 14-cents-a-share loss analysts had expected as price cutting eroded margins. In the corresponding period last year, the company reported a loss of $456.4 million, or $1.97 per share.

The chain's stock price fell 6.4 percent yesterday, closing at $7.15 per share.

"We are in a much better position to accomplish our goals now than we were last year or even last quarter," Robert Miller, Rite Aid's chairman and chief executive officer, said yesterday during an analyst conference call. "Ultimately this will lead to Rite Aid becoming a profitable company."

Though it had a loss, the chain saw an improvement in its EBITDA - earnings before interest, taxes, depreciation and amortization, which rose 33.2 percent to $120.8 million, the company said.

Interest expense for the second quarter was $102.4 million, compared with $182.1 million in the second quarter of 2000, the result of a refinancing that was completed in the second quarter and reduced the company's debt by $2.9 billion.

"The balance sheet looks stronger with each passing quarter," said Sheldon Grodsky, a retail analyst and director of research for Grodsky Associates Inc. in New Jersey. "The company's prognosis for long-term survival has improved."

Sales jumped 8.9 percent at stores open at least a year. Prescription sales were up 11.7 percent and general store merchandise, or "front-end" sales, rose 4.8 percent.

Total sales for the quarter rose 7.3 percent to $3.69 billion.

The company said it expects sales of $7.7 billion to $8 billion for the rest of the fiscal year, which ends March 2. Same store sales, a key measure of a retailer's performance, are expected to rise by 8 percent to 10 percent during the second half, the company said.

Mary Sammons, president and chief operating officer, said the chain has benefited as consumers have shifted toward buying more necessities and fewer discretionary items.

"Lower prices have helped us gain market share in these areas," Sammons said.

Some analysts expressed concern yesterday that the drugstore chain's second-quarter gross profit margins had declined, to 22.18 percent of sales from 23.53 percent.

"Gross margin reduction was a lot worse than we thought it had been," Mark Husson, an analyst with Merrill Lynch Global Securities in New York, said during an analysts conference call.

During the quarter, Rite Aid had lowered prices on cash prescriptions and invested in new photo processing equipment, which put pressure on margins.

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