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TheStreet Open House

4 Companies That Are Bleeding Cash

Stock quotes in this article: ACHN, SHLD, RAD, KIOR

Rite Aid

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Also on the retail front, Rite Aid (RAD) plays a dangerous game. The drugstore chain has been lumbering under a massive debt load, preserving cash while rivals such as Walgreen (WAG) and CVS Caremark (CVS) invest in growth.

Rite Aid's prospects have actually improved a bit lately: Decent recent sales trends have pushed the stock up nearly 50% since October to a recent $1.30. Still, considerable stress remains on this business model. As of the end of November 2011, Rite Aid had $150 million in cash, and more than $6 billion in debt. The company pays out more than $500 million in interest to its bondholders every year. Trouble is, that's the size of the company's cash flow so profits don't go to the balance sheet, they go to the bondholders.

Rite Aid recently announced an impressive 3.6% jump in December same-store sales. Yet almost all of that gain was attributed to a spike in pharmacy sales as several new popular generic drugs hit the market (drug store chains have a higher percentage of exposure to generics while pharmacy benefit managers are more likely to sell branded drugs). Sales growth away from the pharmacists' counter was anemic.

Rite Aid is unlikely to wrestle with bankruptcy fears in the very near-term, but the retailer simply can't afford to move back to negative same-store sales trends. If that happens, the $6 billion debt load would start to be in sharp focus for short-sellers.

Rite Aid is rated D sell by TheStreet Ratings.

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