Rite Aid Reports Disappointing 2Q

Leading drugstore chain operator Rite Aid Corp. ( RAD - Analyst Report ) posted higher net loss of $197.0 million in the second-quarter of fiscal 2011, compared to a loss of $116.0 million in the year-ago period. The quarterly loss per share of 23 cents was much greater than the Zacks Consensus Estimate for a loss of 11 cents. The loss incurred was primarily due to a $44 million or 5 cents charge on debt modification related to the company’s recent refinancing and lower sales.

Quarterly Details

Rite Aid’s revenues declined 2.5% year over year to $6.2 billion from $6.3 billion, primarily due to a 1.5% decline in same-store sales, coupled with the net closure of 65 stores over the past year. During the quarter, the company closed 20 stores, relocated 5 and remodeled 1.

Pharmacy same-store sales decreased 1.8%, hurt by the introduction of new generic drugs, while prescriptions filled at comparable stores decreased 2.1% from the year-ago quarter. Front-end same-stores sales declined 0.9% year over year. Other than prescription drugs, Rite Aid sells a wide assortment of other merchandise, which it terms as "front end" products, including over-the-counter medications, health and beauty aids, personal care items and cosmetics.

Rite Aid’s gross profit fell 2.9% year over year to $1.6 billion, while gross margin contracted 11 basis points (bps) to 26.6%. Selling, general and administrative expenses (SG&A) declined 1.2% year over year to $1.6 billion, mainly due to management’s cost containment initiatives.

The company also recorded an 8.3% reduction in lease termination and impairment charges to $26.3 million, primarily due to fewer store closures in the reported quarter. Despite cost saving measures, Rite Aid reported operating loss (gross profit less SG&A and lease termination and impairment) of $194.1 million, compared to an operating loss of $112.0 million in the prior year quarter.

Balance Sheet and Cash Flow

At the end of the quarter, Rite Aid had cash and cash equivalents of $132.4 million and long-term debt of $6.0 billion, compared to a cash balance of $103.6 million and long-term debt of $6.2 billion in the year-ago period. During the quarter, the company deployed $158 million towards debt repayment and $82.7 million towards capital expenditure.

Guidance and Zacks Consensus

Looking ahead, Rite Aid revised its fiscal 2011 revenue guidance to $25.0 billion to $25.4 billion from $25.2 billion to $25.6 billion. Net loss is now expected to be in the range of $400 million to $590 million or -46 cents to -67 cents. Earlier guidance was $355 million to $570 million, or -41 cents to -65 cents per share.