Rite Aid Narrows Loss in 2Q

Drugstore chain operator Rite Aid Corp. (RAD - Analyst Report) posted a net loss of $94.7 million in the second quarter of fiscal 2012 compared with a much wider loss of $199.3 million in the year-ago period.

The quarterly loss per share of 11 cents not only improved from the prior-year loss of 23 cents but also outpaced the Zacks Consensus Estimate loss of 18 cents. Growth in same-store sales and reduced selling, general & administrative (SG&A) expenses had a positive influence on recent results.

Quarterly Details

Rite Aid's revenues came in at $6,271.1 million for the quarter compared with $6,161.8 million in the prior-year period. The marginal increase of 1.8% was mostly attributable to growth in same-store sales partially offset by store closings. Same-store sales for the quarter showed an increase of 2.2%. Total revenue beat the Zacks Consensus Estimate of $6,207.0 million.

Pharmacy same-store sales inched up 2.0%, despite the negative impact of 148 basis points from the introduction of new generic drugs. Prescriptions filled at comparable stores increased 0.1% from the year-ago quarter. Front-end same-stores sales recorded a growth of 2.5% in the quarter.

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 edged up 1.0% year over year to $1648.9 million while gross margin dropped by 100 basis points to 26.0%. SG&A contracted 1.0% year over year to $1,603.8 million, mainly owing to cost containment measures from management.

The company recorded a 43.0% decrease in lease termination and impairment charges to $15.1 million, primarily driven by lower store closures in the reported quarter. Rite Aid reported adjusted EBITDA of $184.3 million compared with an adjusted EBITDA of $181.2 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 $78.4 million and long-term debt of $6,052.4 million. During the quarter, the company deployed $49.3 million toward debt repayment and $41.5 million toward capital expenditure.

In fiscal 2012, the company expects to incur capital expenditure of $250 million mostly on store remodels and prescription file buys.

Guidance

Looking ahead, Rite Aid expects fiscal 2012 revenue to be between $25.8 billion and $26.1 billion based on same-store sales increase of 0.75% to 2.0%. Net loss is now expected to be in the range of $345 million to $495 million (or 40 cents to 56 cents per share).

The company competes with retail drugstore chains, independently owned drugstores, supermarkets, mass merchandisers, discount stores, dollar stores, and mail order pharmacies. Competitive pressure in the industry is unlikely to subside with continued consolidation, new store openings, and increased mandatory mail orders. The company's direct competitors are Walgreen Co. (WAG - Analyst Report) andCVS Caremark Corporation (CVS - Analyst Report).

Currently, Rite Aid maintains a Zacks #2 Rank, which translates into a short-term Buy rating. However, we retain a long-term Underperform recommendation on the stock.

Read the full analyst report on RAD

Read the full analyst report on CVS

Read the full analyst report on WAG