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Drugstore chain operator, Rite Aid Corp. (RAD - Analyst Report), posted second-quarter 2012 loss per share of 5 cents, which bettered both the prior-year loss of 11 cents a share as well as the Zacks Consensus Estimate of a loss of 8 cents a share. The company’s results mainly benefited from seven straight quarters of improved adjusted EBITDA and same store prescription count. However, this was offset by lower LIFO, store closing & impairment and depreciation & amortization charges.

Quarterly Details

Rite Aid's revenue of $6,230.9 million declined 0.7% compared with $6,271.1 million in the prior-year period. The dip in revenue was attributed to the decline in pharmacy same store sales as well as store closings. However, total revenue edged past the Zacks Consensus Estimate of $6,200 million. Same-store sales for the quarter remained flat compared to the year-ago period, driven by a rise in front-end sales offset by lower pharmacy sales.

During the second quarter, front-end sales improved 1.4%, while Pharmacy sales decreased 0.7%. Pharmacy sales included a 750 basis points negative impact from the introduction of new generic drugs. Besides, prescriptions filled at comparable stores increased 4.0% from the year-ago quarter. Prescription sales made for about 67.5% of total drugstore sales, while third party prescription revenue was 96.5% of pharmacy sales.

Rite Aid's gross profit elevated 3.7% year over year to $1,710.4 million, with gross margin expanding 120 bps to 27.5%. SG&A expenses as a percentage of sales expanded by 40 bps to 26.0%.

Rite Aid reported adjusted EBITDA of $218.7 million compared with an adjusted EBITDA of $184.3 million in the prior-year quarter, primarily due to higher front-end sales, favorable script trends and increased Pharmacy gross margin.

Balance Sheet and Cash Flow

At quarter-end, Rite Aid had cash and cash equivalents of $94.3 million and long-term debt of $5,829.6 million. The company ended the second quarter with $1.151 billion of liquidity, including $102 million of invested cash. There was no borrowing outstanding under its revolver credit facility while the company had $125 million of outstanding letters of credit. The company used $32.9 million of cash flow for operating activities.

As of September 1, 2012, Rite Aid operated about 4,643 stores. As of quarter-end, the company relocated 4 stores, remodeled 147 stores and closed 9 stores. During the quarter, the company completed wellness remodels at about 570 stores.

Guidance

Rite Aid lowered its fiscal 2013 revenue forecast to range from $25.1 billion – $25.4 billion based on same-store sales ranging from a decline of 1.0% to an increase of 0.25% year over year. The lowered sales and comps guidance is mainly due to projected negative impact of 650 basis points in the new generic introductions on pharmacy same store sales.

However, Rite Aid upped the lower end of its 2013 adjusted EBITDA forecast, bringing the guidance to $950 – $1.025 billion. Currently, net loss is expected to be in the range of $965 – $1,025 million. The company now guides net loss in the $69 million – $196 million range, with loss per share ranging between 9 cents to 23 cents.

In fiscal 2013, the company expects to incur capital expenditure of $300 million, mostly on store remodels and prescription file buys.

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) and CVS 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 Neutral recommendation on the stock.

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