Rite Aid Corporation (NYSE: RAD) today announced financial results for its first quarter ended May 31, 2008. Other than same-store comparisons, results for the first quarter reflect the acquisition of the Brooks Eckerd stores and distribution centers acquired June 4, 2007.
Revenues for the 13-week first quarter were $6.61 billion versus revenues of $4.43 billion in the prior year first quarter. Revenues increased 49.3 percent, primarily as a result of the acquisition of the Brooks Eckerd stores.
Same store sales for the 13-week first quarter increased 1.5 percent over the prior year 13-week period, consisting of a 1.4 percent pharmacy same store sales increase, which included an approximate 366 basis point negative impact from new generic introductions, and a 1.7 percent increase in front-end same store sales. The number of prescriptions filled in same stores increased 0.2 percent. The acquired Brooks Eckerd stores are excluded from the same store sales and prescription growth amounts. Prescription sales accounted for 67.6 percent of total sales, and third party prescription sales represented 96.2 percent of pharmacy sales.
Net loss for the first quarter was $156.6 million or $.20 per diluted share compared to last year’s first quarter net income of $27.6 million or $.04 per diluted share. Expected increases in expenses from the Brooks Eckerd acquisition included an increase in depreciation and amortization expense of $77.1 million, additional interest expense of $49.5 million and an increase in integration expense of $33.3 million. These increases, along with an increase in store closing and impairment charges of $32.2 million, offset an increase in adjusted EBITDA of $43.6 million.
Adjusted EBITDA of $236.4 million or 3.6 percent of revenues for the first quarter compared to $192.8 million or 4.4 percent of revenues for the like period last year. The $43.6 million increase is primarily due to the addition of revenues from the acquired Brooks Eckerd stores and an increase in pharmacy gross margin rate. Overall gross margin rate decreased primarily due to more promotional front end sales. Expenses as a percent of revenues were higher, primarily due to expected occupancy expenses related to the company’s new and relocated store program and an increase in wage and benefits expense.
During the quarter, the company completed the conversion of all of the acquired Brooks and Eckerd store systems and remains on schedule to finish the minor remodels and complete the integration by October of this year.
“We increased both pharmacy and front end sales in the core Rite Aid stores during the quarter, and sales trends in our acquired stores continued to improve,” said Mary Sammons, Rite Aid chairman, president and CEO. “We also passed a major milestone in the integration of the former Brooks Eckerd stores by completing the store systems conversion. Today pharmacy dispensing, cash registers and all business applications are now consistent in all of our stores, and we can manage our business seamlessly nationwide. We’re in the home stretch now, finishing the remaining minor remodels of the acquired stores.
“While the business environment remains challenging, we expect that completing the minor remodels, sales turning positive in the acquired stores and new pharmacy and front end initiatives will contribute significantly to strong results in the second half of the fiscal year,” Sammons said.
In the first quarter, the company opened 5 stores, relocated 6 stores, acquired 8 stores, remodeled 39 stores and closed 68 stores, the majority of which were related to combining acquired stores in close proximity to existing stores. Stores in operation at the end of the first quarter totaled 5,004.
Company Confirms Guidance for Fiscal 2009
Rite Aid confirmed its fiscal 2009 guidance for sales, same store sales, net loss, adjusted EBITDA and capital expenditures. Sales are expected to be between $26.7 billion and $27.2 billion in fiscal 2009 with same store sales (which will include nine months of sales from the Brooks Eckerd stores) expected to improve 2.0 percent to 4.0 percent over fiscal 2008. Adjusted EBITDA is expected to be between $1.0 billion and $1.1 billion. Net loss for fiscal 2009 is expected to be between $260 million and $375 million or a loss per diluted share of $.34 to $.48. Capital expenditures, excluding proceeds from sale and leaseback transactions, are expected to be approximately $600 million. Proceeds from sale and leaseback transaction are expected to be approximately $150 million.
Refinancing Launched
Rite Aid said it has launched a previously announced refinancing of approximately $700 million of debt which, when completed, will include a new $350 million senior secured term loan and up to $425 million of senior secured notes. The company intends to use net proceeds of the refinancing to fund the purchase price, accrued interest and related fees and expenses with respect to its previously announced tender offers and consent solicitations for any and all of its 8.125% senior secured notes due 2010, 7.5% senior secured notes due 2015 and 9.25% senior notes due 2013, which currently restrict the company’s ability to borrow the full availability of its $1.75 billion revolving credit facility. Rite Aid said the majority of holders of these issues have agreed to tender the securities. The company said net loss and loss per share could be impacted by charges related to the refinancing. Consummation of the refinancing is subject to market and other conditions.
“This refinancing gives us greater flexibility to support our business plans in an environment that includes worries about a lengthy recession and continued uncertainty of the capital markets.” Sammons said.
Conference Call Broadcast
Rite Aid will hold an analyst call at 8:30 a.m. Eastern Time today with remarks by Rite Aid's management team. The call will be simulcast via the internet and can be accessed through the websites www.riteaid.com in the conference call section of investor information and www.StreetEvents.com. A playback of the call will be available on both sites starting at 2 p.m. Eastern Time today. A playback of the call will also be available by telephone for 48 hours beginning at 12 p.m. Eastern Time today until 12 p.m. Eastern Time on June 28. The playback number is 1-800-642-1687 from within the U.S. and Canada or 1-706-645-9291 from outside the U.S. and Canada with the eight-digit reservation number 50983053.
Rite Aid Corporation is one of the nation’s leading drugstore chains with more than 5,000 stores in 31 states and the District of Columbia. Information about Rite Aid, including corporate background and press releases, is available through the company’s website at http://www.riteaid.com.
This press release contains forward-looking statements, including guidance, which are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially from those expressed or implied in such forward-looking statements include our high level of indebtedness; our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our senior secured credit facility and other debt agreements; our ability to consummate our refinancing; our ability to improve the operating performance of our storesin accordance with our long term strategy, our ability to realize the benefits of the Brooks Eckerd acquisition, including positive same store sales growth for Brooks Eckerd and cost savings; our ability to manage expenses, including integration expenses; our ability to hire and retain pharmacists and other store personnel; the efforts of private and public third-party payors to reduce prescription drug reimbursements and encourage mail order; competitive pricing pressures, including aggressive promotional activity from our competitors; continued consolidation of the drugstore industry; changes in state or federal legislation or regulations; the outcome of lawsuits and governmental investigations; general economic conditions and inflation and interest rate movements and access to capital. Consequently, all of the forward-looking statements made in this press release, including our guidance, are qualified by these and other factors, risks and uncertainties. Readers are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission. Forward-looking statements can be identified through the use of words such as "may", "will", "intend", "plan", "project", "expect", "anticipate", "could", "should", "would", "believe", "estimate", "contemplate", and "possible".
See the attached table for a reconciliation of a non-GAAP financial measure, Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure. We define Adjusted EBITDA as net income (loss) from operations excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments, charges or credits for store closing and impairment, inventory write-downs related to closed stores, stock-based compensation expense, debt modifications and retirements, sale of assets and investments and other non-recurring items. We reference this non-GAAP financial measure frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods and external comparisons to competitors’ historical operating performance. In addition, incentive compensation is based on Adjusted EBITDA and we base our forward-looking estimates on Adjusted EBITDA to facilitate quantification of planned business activities and enhance subsequent follow-up with comparisons of actual to planned Adjusted EBITDA. We include this non-GAAP financial measure in our earnings announcement in order to provide transparency to our investors and enable investors to better compare our operating performance with the operating performance of our competitors.
This press release shall not constitute an offer to sell or a solicitation of an offer to buy any securities. The secured notes described herein will not be sold in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.
| RITE AID CORPORATION AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (Dollars in thousands) | ||||||||
| (unaudited) | ||||||||
| May 31, 2008 | March 1, 2008 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 152,189 | $ | 155,762 | ||||
| Accounts receivable, net | 645,592 | 665,971 | ||||||
| Inventories, net of LIFO reserve of $577,823 and $562,729 | 3,942,922 | 3,936,827 | ||||||
| Prepaid expenses and other current assets | 157,584 | 163,334 | ||||||
| Total current assets | 4,898,287 | 4,921,894 | ||||||
| Property, plant and equipment, net | 2,809,987 | 2,873,009 | ||||||
| Goodwill | 1,810,223 | 1,783,372 | ||||||
| Other intangibles, net | 1,168,774 | 1,187,327 | ||||||
| Deferred tax assets | 355,533 | 384,163 | ||||||
| Other assets | 359,878 | 338,258 | ||||||
| Total assets | $ | 11,402,682 | $ | 11,488,023 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current maturities of long-term debt and lease financing obligations | $ | 36,962 | $ | 185,609 | ||||
| Accounts payable | 1,315,825 | 1,425,768 | ||||||
| Accrued salaries, wages and other current liabilities | 1,083,708 | 1,110,288 | ||||||
| Deferred tax liabilities | 47,744 | 76,374 | ||||||
| Total current liabilities | 2,484,239 | 2,798,039 | ||||||
| Long-term debt, less current maturities | 5,952,423 | 5,610,489 | ||||||
| Lease financing obligations, less current maturities | 191,279 | 189,426 | ||||||
| Other noncurrent liabilities | 1,211,890 | 1,178,884 | ||||||
| Total liabilities | 9,839,831 | 9,776,838 | ||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders' equity: | ||||||||
| Preferred stock - Series G | 141,690 | 139,253 | ||||||
| Preferred stock - Series H | 137,230 | 135,202 | ||||||
| Preferred stock - Series I | 58,358 | 116,415 | ||||||
| Common stock | 845,088 | 830,209 | ||||||
| Additional paid-in capital | 4,094,170 | 4,047,499 | ||||||
| Accumulated deficit | (3,693,929 | ) | (3,537,276 | ) | ||||
| Accumulated other comprehensive loss | (19,756 | ) | (20,117 | ) | ||||
| Total stockholders' equity | 1,562,851 | 1,711,185 | ||||||
| Total liabilities and stockholders' equity | $ | 11,402,682 | $ | 11,488,023 | ||||
| RITE AID CORPORATION AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (Dollars in thousands, except per share amounts) | ||||||||
| (unaudited) | ||||||||
Thirteen Weeks ended May 31, 2008 | Thirteen Weeks ended June 2, 2007 | |||||||
| Revenues | $ | 6,612,856 | $ | 4,430,413 | ||||
| Costs and expenses: | ||||||||
| Cost of goods sold | 4,804,610 | 3,214,834 | ||||||
| Selling, general and administrative expenses | 1,792,974 | 1,119,642 | ||||||
| Store closing and impairment charges | 36,262 | 4,030 | ||||||
| Interest expense | 118,240 | 68,725 | ||||||
| Loss on debt modifications and retirements, net | 3,708 | - | ||||||
| Loss (gain) on sale of assets, net | 5,340 | (4,230 | ) | |||||
| 6,761,134 | 4,403,001 | |||||||
| (Loss) income from continuing operations before income taxes | (148,278 | ) | 27,412 | |||||
| Income tax expense (benefit) | 4,993 | (900 | ) | |||||
| Net (loss) income from continuing operations | (153,271 | ) | 28,312 | |||||
Loss from discontinued operations | (3,369 | ) | (678 | ) | ||||
| Net (loss) income | $ | (156,640 | ) | $ | 27,634 | |||
| Basic and diluted (loss) income per share: | ||||||||
| Numerator for (loss) income per share: | ||||||||
| Net (loss) income | $ | (156,640 | ) | $ | 27,634 | |||
| Accretion of redeemable preferred stock | (25 | ) | (25 | ) | ||||
| Cumulative preferred stock dividends | (6,122 | ) | (8,030 | ) | ||||
| Preferred stock beneficial conversion | - | (76 | ) | |||||
| (Loss) income attributable to common stockholders - basic and diluted | $ | (162,787 | ) | $ | 19,503 | |||
| Denominator: | ||||||||
| Basic weighted average shares | 823,086 | 531,039 | ||||||
| Outstanding options and restricted shares | - | 19,299 | ||||||
| Diluted weighted average shares | 823,086 | 550,338 | ||||||
| Basic and diluted (loss) income per share | $ | (0.20 | ) | $ | 0.04 | |||
| RITE AID CORPORATION AND SUBSIDIARIES | ||||||||
| SUPPLEMENTAL INFORMATION | ||||||||
| RECONCILIATION OF NET (LOSS) INCOME TO ADJUSTED EBITDA | ||||||||
| (In thousands) | ||||||||
Thirteen Weeks ended May 31, 2008 | Thirteen Weeks ended June 2, 2007 | |||||||
| Reconciliation of net (loss) income to adjusted EBITDA: | ||||||||
| Net (loss) income | $ | (156,640 | ) | $ | 27,634 | |||
| Adjustments: | ||||||||
| Interest expense | 118,240 | 68,725 | ||||||
Income tax expense (benefit) | 4,993 | (1,265 | ) | |||||
| Depreciation and amortization | 145,041 | 67,919 | ||||||
LIFO charges (a) | 15,094 | 9,291 | ||||||
| Store closing and impairment charges | 36,262 | 4,030 | ||||||
| Stock-based compensation expense | 8,679 | 6,614 | ||||||
| Loss (gain) on sale of assets, net | 5,388 | (4,230 | ) | |||||
Loss on debt modifications and retirements, net (b) | 3,708 | - | ||||||
Incremental acquisition costs (c) | 44,491 | 11,165 | ||||||
Closed store liquidation expense (d) | 4,860 | 2,099 | ||||||
| Other | 6,313 | 834 | ||||||
| Adjusted EBITDA | $ | 236,429 | $ | 192,816 | ||||
| Percent of revenues | 3.58 | % | 4.35 | % | ||||
Results of discontinued operations (e) | 1,882 | 782 | ||||||
| Adjusted EBITDA from continuing operations | $ | 238,311 | $ | 193,598 | ||||
| Notes: | ||
(a) | Represents non-cash charges to value our inventories under the last-in first-out ("LIFO") method. | |
(b) | Represents loss related to debt modifications and retirements, net | |
(c) | Represents incremental costs related to the acquisition of Jean Coutu, USA. | |
(d) | Represents costs to liquidate inventory at stores that are in the process of closing. | |
(e) | Represents losses from our recently disposed Las Vegas market that are included in Adjusted EBITDA. | |
| RITE AID CORPORATION AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Dollars in thousands) | ||||||||
| (unaudited) | ||||||||
Thirteen Weeks ended May 31, 2008 | Thirteen Weeks ended June 2, 2007 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | (156,640 | ) | $ | 27,634 | |||
| Adjustments to reconcile to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | 145,041 | 67,919 | ||||||
| Store closing and impairment charges | 36,262 | 4,030 | ||||||
| LIFO charges | 15,094 | 9,291 | ||||||
| Loss (gain) on sale of assets, net | 5,388 | (4,230 | ) | |||||
| Stock-based compensation expense | 8,679 | 6,614 | ||||||
| Loss on debt modifications and retirements, net | 3,708 | - | ||||||
| Changes in deferred taxes | - | 1,161 | ||||||
| Proceeds from insured loss | - | 7,258 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Net proceeds from accounts receivable securitization | 70,000 | 30,000 | ||||||
| Accounts receivable | (48,842 | ) | (43,010 | ) | ||||
| Inventories | (51,103 | ) | 9,109 | |||||
| Accounts payable | (116,929 | ) | 51,180 | |||||
| Other assets and liabilities, net | (15,986 | ) | 19,328 | |||||
| Net cash (used in) provided by operating activities | (105,328 | ) | 186,284 | |||||
| INVESTING ACTIVITIES: | ||||||||
| Payments for property, plant and equipment | (149,876 | ) | (117,500 | ) | ||||
| Intangible assets acquired | (36,122 | ) | (13,801 | ) | ||||
| Expenditures for business acquisition | (112 | ) | (1,237,512 | ) | ||||
| Proceeds from sale-leaseback transactions | 87,620 | - | ||||||
| Proceeds from dispositions of assets and investments | 4,676 | 4,711 | ||||||
| Proceeds from insured loss | - | 5,542 | ||||||
| Net cash used in investing activities | (93,814 | ) | (1,358,560 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of long-term debt | 158,000 | 1,201,005 | ||||||
| Net proceeds from (payments to) revolver | 186,000 | (39,000 | ) | |||||
| Proceeds from financing secured by owned property | 11,132 | - | ||||||
| Principal payments on long-term debt | (154,965 | ) | (3,191 | ) | ||||
| Change in zero balance cash accounts | 5,542 | 12,946 | ||||||
| Net proceeds from the issuance of common stock | 1,117 | 9,095 | ||||||
| Payments for preferred stock dividends | (1,657 | ) | (3,845 | ) | ||||
| Excess tax deduction on stock options | - | 2,871 | ||||||
| Financing costs paid | (9,600 | ) | (2,063 | ) | ||||
| Net cash used in financing activities | 195,569 | 1,177,818 | ||||||
| (Decrease) increase in cash and cash equivalents | (3,573 | ) | 5,542 | |||||
| Cash and cash equivalents, beginning of period | 155,762 | 106,148 | ||||||
| Cash and cash equivalents, end of period | $ | 152,189 | $ | 111,690 | ||||
| RITE AID CORPORATION AND SUBSIDIARIES | ||||||||
| SUPPLEMENTAL INFORMATION | ||||||||
| RECONCILIATION OF NET LOSS GUIDANCE TO ADJUSTED EBITDA GUIDANCE | ||||||||
| YEAR ENDING FEBRUARY 28, 2009 | ||||||||
| (In thousands, except per share amounts) | ||||||||
| Guidance Range | ||||||||
| Low | High | |||||||
| Reconciliation of net loss to adjusted EBITDA: | ||||||||
| Net loss | $ | (375,000 | ) | $ | (260,000 | ) | ||
| Adjustments: | ||||||||
| Interest expense | 490,000 | 485,000 | ||||||
| Income tax expense, net | 12,000 | 7,000 | ||||||
| Depreciation and amortization | 545,000 | 545,000 | ||||||
| LIFO charge | 60,000 | 55,000 | ||||||
| Store closing, liquidation, and impairment charges | 110,000 | 110,000 | ||||||
| Non recurring Brooks-Eckerd integration expenses | 110,000 | 110,000 | ||||||
| Stock-based compensation expense | 38,000 | 38,000 | ||||||
| Other | 10,000 | 10,000 | ||||||
| Adjusted EBITDA | $ | 1,000,000 | $ | 1,100,000 | ||||
| Diluted loss per share | $ | (0.48 | ) | $ | (0.34 | ) | ||
Contacts:
INVESTORS:
Kevin Twomey, 717-731-6540
investor@riteaid.com
or
MEDIA:
Karen
Rugen, 717-730-7766
