Rite Aid Reports Net Income of $104.8 Million and Adjusted EBITDA of $332.8 Million for Third Quarter Fiscal 2015

Rite Aid Corporation (NYSE:RAD) today reported operating results for its fiscal third quarter ended November 29, 2014. The company reported revenues of $6.7 billion, net income of $104.8 million or $0.10 per diluted share, and Adjusted EBITDA of $332.8 million, or 5.0 percent of revenues.

"We are pleased with our results for the third quarter, said Rite Aid Chairman and CEO John Standley.” Our focus on expanding our health and wellness offering and delivering a higher level of care to the communities we serve drove our strong same-store sales, prescription count and gross profit. Based upon our strong third-quarter results, we have raised our guidance for the year."

Third Quarter Summary

Revenues for the quarter were $6.7 billion versus revenues of $6.4 billion in the prior year’s third quarter. Revenues increased 5.3 percent primarily as a result of an increase in same store sales.

Same store sales for the quarter increased 5.4 percent over the prior year, consisting of a 1.6 percent increase in front-end sales and a 7.2 percent increase in pharmacy sales. Pharmacy sales included an approximate 228 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores increased 4.5 percent over the prior year period. Prescription sales accounted for 69.8 percent of total drugstore sales, and third party prescription revenue was 97.6 percent of pharmacy sales.

Net income was $104.8 million or $0.10 per diluted share compared to last year’s third quarter net income of $71.5 million or $0.04 per diluted share. The improvement in net income resulted primarily from an increase in Adjusted EBITDA and a lower LIFO charge, partially offset by a higher loss on debt retirement related to the redemption of the company’s 10.25% senior secured notes.

Adjusted EBITDA (which is reconciled to net income on the attached table) was $332.8 million or 5.0 percent of revenues for the third quarter compared to $282.3 million or 4.4 percent of revenues for the like period last year. Adjusted EBITDA improved due to an increase in front-end and pharmacy gross profit, partially offset by an increase in selling, general and administrative expenses related to our higher level of sales. The improved pharmacy gross profit was driven by the increase in pharmacy prescription revenues and a reduction in generic drug costs, driven by the company’s transition to its new drug purchasing and delivery arrangement with McKesson, partially offset by lower reimbursement rates.

In the third quarter, the company relocated 3 stores, remodeled 103 stores and expanded 1 store, bringing the total number of wellness stores chainwide to 1,529. The company also acquired 6 stores and closed 6 stores, resulting in a total store count of 4,572 at the end of the third quarter.

Rite Aid Raises Fiscal 2015 Guidance

Based upon third quarter results, the company is raising its guidance. Adjusted EBITDA (which is reconciled to net income on the attached table) is expected to be between $1.275 billion and $1.305 billion. Net income is expected to be between $315.0 million and $370.0 million and income per diluted share between $0.31 and $0.37. Sales are expected to be between $26.25 billion and $26.4 billion and same store sales to range from an increase of 3.75 percent to an increase of 4.25 percent over Fiscal 2014. Capital expenditures are expected to be approximately $525 million.

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. Slides related to materials discussed on the call will be available on both sites. A playback of the call will be available on both sites starting at 12 p.m. Eastern Time today. A playback of the call will also be available by telephone beginning at 12 p.m. Eastern Time today until 11:59 p.m. Eastern Time on Dec. 20, 2014. The playback number is 1-855-859-2056 from within the U.S. and Canada or 1-404-537-3406 from outside the U.S. and Canada with the eight-digit reservation number 38826492.

Rite Aid is one of the nation’s leading drugstore chains with 4,572 stores in 31 states and the District of Columbia. Information about Rite Aid, including corporate background and press releases, is available through Rite Aid’s website at www.riteaid.com.

Statements, including guidance, in this release that are not historical are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” and “will” and variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, our high level of indebtedness and our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our debt agreements, general economic, market and competitive conditions, our ability to improve the operating performance of our stores in accordance with our long term strategy, the impact of private and public third-party payers continued reduction in prescription drug reimbursements and efforts to encourage mail order, our ability to manage expenses and our investments in working capital, outcomes of legal and regulatory matters and changes in legislation or regulations, including healthcare reform. These and other risks, assumptions and uncertainties are described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K and in other documents that we file or furnish with the Securities and Exchange Commission, which you are encouraged to read. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Rite Aid expressly disclaims any current intention to update publicly any forward-looking statement after the distribution of this release, whether as a result of new information, future events, changes in assumptions or otherwise.

See the attached table for a reconciliation of a non-GAAP financial measure, Adjusted EBITDA to net income, the most comparable GAAP financial measure. We define Adjusted EBITDA as net income excluding the impact of income taxes (and any corresponding adjustments to tax indemnification asset), interest expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, inventory write-downs related to store closings, debt retirements and other items (including stock-based compensation expense, sale of assets and investments and revenue deferrals related to our customer loyalty program).

RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
November 29, 2014 March 1, 2014
ASSETS
Current assets:
Cash and cash equivalents $ 232,954 $ 146,406
Accounts receivable, net 996,545 949,062
Inventories, net of LIFO reserve of $1,023,213 and $1,018,581 2,997,595 2,993,948
Prepaid expenses and other current assets 132,873 195,709
Total current assets 4,359,967 4,285,125
Property, plant and equipment, net 2,062,376 1,957,329
Goodwill 76,124 -
Other intangibles, net 420,415 431,227
Other assets 267,104 271,190
Total assets $ 7,185,986 $ 6,944,871
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt and lease financing obligations $ 111,613 $ 49,174
Accounts payable 1,205,887 1,292,419
Accrued salaries, wages and other current liabilities 1,147,174 1,165,859
Total current liabilities 2,464,674 2,507,452
Long-term debt, less current maturities 5,673,591 5,632,798
Lease financing obligations, less current maturities 65,483 75,171
Other noncurrent liabilities 774,896 843,152
Total liabilities 8,978,644 9,058,573
Commitments and contingencies - -
Stockholders' deficit:
Common stock 981,773 971,331
Additional paid-in capital 4,502,631 4,468,149
Accumulated deficit (7,241,707 ) (7,515,848 )
Accumulated other comprehensive loss (35,355 ) (37,334 )
Total stockholders' deficit (1,792,658 ) (2,113,702 )
Total liabilities and stockholders' deficit $ 7,185,986 $ 6,944,871
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)

Thirteen weeks ended
November 29, 2014

Thirteen weeks ended
November 30, 2013

Revenues $ 6,692,333 $ 6,357,732
Costs and expenses:
Cost of goods sold 4,769,020 4,557,066
Selling, general and administrative expenses 1,692,437 1,632,299
Lease termination and impairment charges 8,702 1,672
Interest expense 97,400 102,819
Loss on debt retirements, net 18,512 271
Gain on sale of assets, net (455 ) (9,331 )
6,585,616 6,284,796
Income before income taxes 106,717 72,936
Income tax expense 1,871 1,388
Net income $ 104,846 $ 71,548
Basic and diluted earnings per share:
Numerator for earnings per share:
Net income $ 104,846 $ 71,548
Accretion of redeemable preferred stock - (26 )
Cumulative preferred stock dividends - (2,814 )
Conversion of Series G and H preferred stock - (25,603 )
Income attributable to common stockholders - basic 104,846 43,105
Add back - Interest on convertible notes 1,364 -
Income attributable to common stockholders - diluted $ 106,210 $ 43,105
Denominator:
Basic weighted average shares 972,688 938,994
Outstanding options and restricted shares, net 22,793 48,843
Convertible notes 24,796 -
Diluted weighted average shares 1,020,277 987,837
Basic income per share $ 0.11 $ 0.05
Diluted income per share $ 0.10 $ 0.04
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)

Thirty-nine weeks ended
November 29, 2014

Thirty-nine weeks ended
November 30, 2013

Revenues $ 19,680,448 $ 18,928,954
Costs and expenses:
Cost of goods sold 14,059,577 13,490,936
Selling, general and administrative expenses 4,977,315 4,844,491
Lease termination and impairment charges 20,661

24,034

Interest expense 299,170 322,599
Loss on debt retirements, net 18,512 62,443
Gain on sale of assets, net (2,540 ) (16,396 )
19,372,695 18,728,107
Income before income taxes 307,753 200,847
Income tax expense 33,612 6,810
Net income $ 274,141 $ 194,037
Basic and diluted earnings per share:
Numerator for earnings per share:
Net income $ 274,141 $ 194,037
Accretion of redeemable preferred stock - (77 )
Cumulative preferred stock dividends - (8,318 )
Conversion of Series G and H preferred stock - (25,603 )
Income attributable to common stockholders - basic 274,141 160,039
Add back - Interest on convertible notes 4,092 -
Income attributable to common stockholders - diluted $ 278,233 $ 160,039
Denominator:
Basic weighted average shares 968,897 911,608
Outstanding options and restricted shares, net 25,330 41,227
Convertible notes 24,796 -
Diluted weighted average shares 1,019,023 952,835
Basic income per share $ 0.28 $ 0.18
Diluted income per share $ 0.27 $ 0.17
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(unaudited)

Thirteen weeks ended
November 29, 2014

Thirteen weeks ended
November 30, 2013

Net income $ 104,846 $ 71,548
Other comprehensive income:
Defined benefit pension plans:

Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost

660 1,263
Total other comprehensive income 660 1,263
Comprehensive income $ 105,506 $ 72,811
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(unaudited)

Thirty-nine weeks ended
November 29, 2014

Thirty-nine weeks ended
November 30, 2013

Net income $ 274,141 $ 194,037
Other comprehensive income:
Defined benefit pension plans:
Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost 1,979 3,788
Total other comprehensive income 1,979 3,788
Comprehensive income $ 276,120 $ 197,825
RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OPERATING AND CASH FLOW INFORMATION
(Dollars in thousands, except per share amounts)
(unaudited)

Thirteen weeks ended
November 29, 2014

Thirteen weeks ended
November 30, 2013

SUPPLEMENTAL OPERATING INFORMATION
Revenues $ 6,692,333 $ 6,357,732
Cost of goods sold 4,769,020 4,557,066
Gross profit 1,923,313 1,800,666
LIFO charge 1,543 25,000
FIFO gross profit 1,924,856 1,825,666
Gross profit as a percentage of revenues 28.74% 28.32%
LIFO charge as a percentage of revenues 0.02% 0.39%
FIFO gross profit as a percentage of revenues 28.76% 28.72%
Selling, general and administrative expenses 1,692,437 1,632,299
Selling, general and administrative expenses as a percentage of revenues 25.29% 25.67%
Cash interest expense 93,142 98,838
Non-cash interest expense 4,258 3,981
Total interest expense 97,400 102,819
Adjusted EBITDA 332,769 282,262
Adjusted EBITDA as a percentage of revenues 4.97% 4.44%
Net income 104,846 71,548
Net income as a percentage of revenues 1.57% 1.13%
Total debt 5,850,687 5,952,426
Invested cash 862 11,323
Total debt net of invested cash 5,849,825 5,941,103
SUPPLEMENTAL CASH FLOW INFORMATION
Payments for property, plant and equipment 131,305 84,419
Intangible assets acquired 39,586 28,954
Total cash capital expenditures 170,891 113,373
Equipment received for noncash consideration 263 1,588
Equipment financed under capital leases 824 1,906
Gross capital expenditures $ 171,978 $ 116,867
RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OPERATING AND CASH FLOW INFORMATION
(Dollars in thousands, except per share amounts)
(unaudited)

Thirty-nine weeks ended
November 29, 2014

Thirty-nine weeks ended
November 30, 2013

SUPPLEMENTAL OPERATING INFORMATION
Revenues $ 19,680,448 $ 18,928,954
Cost of goods sold 14,059,577 13,490,936
Gross profit 5,620,871 5,438,018
LIFO charge 4,632 60,000
FIFO gross profit 5,625,503 5,498,018
Gross profit as a percentage of revenues 28.56% 28.73%
LIFO charge as a percentage of revenues 0.02% 0.32%
FIFO gross profit as a percentage of revenues 28.58% 29.05%
Selling, general and administrative expenses 4,977,315 4,844,491
Selling, general and administrative expenses as a percentage of revenues 25.29% 25.59%
Cash interest expense 286,135 309,942
Non-cash interest expense 13,035 12,657
Total interest expense 299,170 322,599
Adjusted EBITDA 979,548 968,629
Adjusted EBITDA as a percentage of revenues 4.98% 5.12%
Net income 274,141 194,037
Net income as a percentage of revenues 1.39% 1.03%
Total debt 5,850,687 5,952,426
Invested cash 862 11,323
Total debt net of invested cash 5,849,825 5,941,103
SUPPLEMENTAL CASH FLOW INFORMATION
Payments for property, plant and equipment 324,938 255,269
Intangible assets acquired 79,609 64,605
Total cash capital expenditures 404,547 319,874
Equipment received for noncash consideration 1,600 1,588
Equipment financed under capital leases 4,749 15,023
Gross capital expenditures $ 410,896 $ 336,485
RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(In thousands)

Thirteen weeks ended
November 29, 2014

Thirteen weeks ended
November 30, 2013

Reconciliation of net income to adjusted EBITDA:
Net income $ 104,846 $ 71,548
Adjustments:
Interest expense 97,400 102,819
Income tax expense 1,871 1,388
Depreciation and amortization 104,614 101,188
LIFO charge 1,543 25,000
Lease termination and impairment charges 8,702 1,672
Other 13,793 (21,353 )
Adjusted EBITDA $ 332,769 $ 282,262
Percent of revenues 4.97 % 4.44 %
RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(In thousands)

Thirty-nine weeks ended
November 29, 2014

Thirty-nine weeks ended
November 30, 2013

Reconciliation of net income to adjusted EBITDA:
Net income $ 274,141 $ 194,037
Adjustments:
Interest expense 299,170 322,599
Income tax expense 33,612 6,810
Depreciation and amortization 309,203 301,681
LIFO charge 4,632 60,000
Lease termination and impairment charges 20,661 24,034
Other 38,129 59,468
Adjusted EBITDA $ 979,548 $ 968,629
Percent of revenues 4.98 % 5.12 %
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)

Thirteen weeks ended
November 29, 2014

Thirteen weeks ended
November 30, 2013

OPERATING ACTIVITIES:
Net income $ 104,846 $ 71,548
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 104,614 101,188
Lease termination and impairment charges 8,702 1,672
Gain from lease termination - (8,750 )
LIFO charge 1,543 25,000
Gain on sale of assets, net (455 ) (9,331 )
Stock-based compensation expense 7,040 4,117
Loss on debt retirements, net 18,512 271
Excess tax benefit on stock options (589 ) -
Changes in operating assets and liabilities:
Accounts receivable (41,934 ) 76,532
Inventories (76,955 ) (110,482 )
Accounts payable (18,297 ) (11,040 )
Other assets and liabilities, net 4,701 106,661
Net cash provided by operating activities 111,728 247,386
INVESTING ACTIVITIES:
Payments for property, plant and equipment (131,305 ) (84,419 )
Intangible assets acquired (39,586 ) (28,954 )
Proceeds from dispositions of assets and investments 4,457 4,459
Proceeds from lease termination - 8,750
Proceeds from insured loss - 2,758
Net cash used in investing activities (166,434 ) (97,406 )
FINANCING ACTIVITIES:
Net proceeds from (payments to) revolver 375,000 (87,000 )
Principal payments on long-term debt (278,189 ) (10,557 )
Change in zero balance cash accounts 17,611 (4,842 )
Net proceeds from the issuance of common stock 732 12,618
Payments for the repurchase of preferred stock - (21,034 )
Financing fees paid for early debt redemption (13,841 ) -
Excess tax benefit on stock options 589 -
Deferred financing costs paid - (120 )
Net cash provided by (used in) financing activities 101,902 (110,935 )
Increase in cash and cash equivalents 47,196 39,045
Cash and cash equivalents, beginning of period 185,758 144,167
Cash and cash equivalents, end of period $ 232,954 $ 183,212
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)

Thirty-nine weeks ended
November 29, 2014

Thirty-nine weeks ended
November 30, 2013

OPERATING ACTIVITIES:
Net income $ 274,141 $ 194,037
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 309,203 301,681
Lease termination and impairment charges 20,661 24,034
Gain from lease termination - (8,750 )
LIFO charge 4,632 60,000
Gain on sale of assets, net (2,540 ) (16,396 )
Stock-based compensation expense 16,932 12,194
Loss on debt retirements, net 18,512 62,443
Excess tax benefit on stock options (27,647 ) -
Changes in operating assets and liabilities:
Accounts receivable (41,493 ) 79,895
Inventories (8,038 ) (206,408 )
Accounts payable (45,047 ) 25,160
Other assets and liabilities, net (45,357 ) (19,972 )
Net cash provided by operating activities 473,959 507,918
INVESTING ACTIVITIES:
Payments for property, plant and equipment (324,938 ) (255,269 )
Intangible assets acquired (79,609 ) (64,605 )
Acquisition of Health Dialog and RediClinic, net of cash acquired (69,793 ) -
Proceeds from sale-leaseback transactions - 3,989
Proceeds from dispositions of assets and investments 10,559 14,157
Proceeds from lease termination - 8,750
Proceeds from insured loss - 6,138
Net cash used in investing activities (463,781 ) (286,840 )
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,152,293 1,310,000
Net proceeds from (payments to) revolver 380,000 (75,000 )
Principal payments on long-term debt (1,443,812 ) (1,332,528 )
Change in zero balance cash accounts (39,934 ) (10,161 )
Net proceeds from the issuance of common stock 15,523 24,881
Payments for the repurchase of preferred stock - (21,034 )
Financing fees paid for early debt redemption (13,841 ) (45,636 )
Excess tax benefit on stock options 27,647 -
Deferred financing costs paid (1,506 ) (17,840 )
Net cash provided by (used in) financing activities 76,370 (167,318 )
Increase in cash and cash equivalents 86,548 53,760
Cash and cash equivalents, beginning of period 146,406 129,452
Cash and cash equivalents, end of period $ 232,954 $ 183,212
RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF NET INCOME GUIDANCE TO ADJUSTED EBITDA GUIDANCE
YEAR ENDING FEBRUARY 28, 2015
(In thousands, except per share amounts)
Guidance Range
LowHigh
Sales $ 26,250,000 $ 26,400,000
Same store sales 3.75% 4.25%
Gross capital expenditures $ 525,000 $ 525,000
Reconciliation of net income to adjusted EBITDA:
Net income $ 315,000 $ 370,000
Adjustments:
Interest expense 393,000 393,000
Income tax expense 35,000 35,000
Depreciation and amortization 418,000 416,000
LIFO charge 15,000 -
Store closing and impairment charges 50,000 46,000
Loss on debt retirement 18,000 18,000
Other 31,000 27,000
Adjusted EBITDA $ 1,275,000 $ 1,305,000
Diluted income per share $ 0.31 $ 0.37

Contacts:

Rite Aid Corporation
Investors:
Matt Schroeder, 717-214-8867
investor@riteaid.com
or
Media:
Susan Henderson, 717-730-7766

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