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TheStreet Open House

Rite Aid Reports Improved Second Quarter Fiscal 2013 Results

Conference Call Broadcast

Rite Aid will hold an analyst call at 8:30 a.m. EDT 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. EDT today. A playback of the call will also be available by telephone beginning at 12 p.m. EDT today until 11:59 p.m. EDT on Sept.22, 2012. 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 25825690.

Rite Aid is one of the nation’s leading drugstore chains with 4,643 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 efforts of private and public third-party payers to reduce prescription drug reimbursements and 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 (loss), the most comparable GAAP financial measure. We define Adjusted EBITDA as net income (loss) excluding the impact of income taxes (and any corresponding reduction of 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, stock-based compensation expense, debt modifications and retirements, sale of assets and investments, revenue deferrals related to our customer loyalty program and other items.

   
RITE AID CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
 
September 1, 2012 March 3, 2012
ASSETS
Current assets:
Cash and cash equivalents $ 94,325 $ 162,285
Accounts receivable, net 926,428 1,013,233
Inventories, net of LIFO reserve of $1,090,625 and $1,063,123 3,022,707 3,138,455
Prepaid expenses and other current assets   197,467     190,613  
Total current assets 4,240,927 4,504,586
Property, plant and equipment, net 1,899,866 1,902,021
Other intangibles, net 482,453 528,775
Other assets   327,332     428,909  
Total assets $ 6,950,578   $ 7,364,291  
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt and lease financing obligations $ 228,134 $ 79,421
Accounts payable 1,258,460 1,426,391
Accrued salaries, wages and other current liabilities   1,138,588     1,064,507  
Total current liabilities 2,625,182 2,570,319
Long-term debt, less current maturities 5,829,582 6,141,773
Lease financing obligations, less current maturities 101,195 107,007
Other noncurrent liabilities   1,037,942     1,131,948  
Total liabilities 9,593,901 9,951,047
 
Commitments and contingencies - -
Stockholders' deficit:
Preferred stock - Series G 1 1
Preferred stock - Series H 176,755 171,569
Common stock 903,786 898,687
Additional paid-in capital 4,276,950 4,278,988
Accumulated deficit (7,950,220 ) (7,883,367 )
Accumulated other comprehensive loss   (50,595 )   (52,634 )
Total stockholders' deficit   (2,643,323 )   (2,586,756 )
Total liabilities and stockholders' deficit $ 6,950,578   $ 7,364,291  
   
RITE AID CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
 
 
Thirteen weeks ended Thirteen weeks ended
September 1, 2012 August 27, 2011
Revenues $ 6,230,884 $ 6,271,091
Costs and expenses:
Cost of goods sold 4,520,463 4,622,130
Selling, general and administrative expenses 1,618,169 1,603,752
Lease termination and impairment charges 7,783 15,118
Interest expense 129,054 130,829
Gain on debt modifications and retirements, net - (4,924 )
Gain on sale of assets, net   (2,954 )   (848 )
 
  6,272,515     6,366,057  
 
Loss before income taxes (41,631 ) (94,966 )
Income tax benefit   (2,866 )   (2,712 )
Net loss $ (38,765 ) $ (92,254 )
 
Basic and diluted loss per share:
 
Numerator for loss per share:
Net loss $ (38,765 ) $ (92,254 )
Accretion of redeemable preferred stock (26 ) (26 )
Cumulative preferred stock dividends   (2,612 )   (2,461 )
Loss attributable to common stockholders - basic and diluted $ (41,403 ) $ (94,741 )
 
 
 
Basic and diluted weighted average shares   889,645     885,621  
 
Basic and diluted loss per share $ (0.05 ) $ (0.11 )
   
RITE AID CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
 
 
Twenty-six weeks ended Twenty-six weeks ended
September 1, 2012 August 27, 2011
Revenues $ 12,699,171 $ 12,661,884
Costs and expenses:
Cost of goods sold 9,239,979 9,322,004
Selling, general and administrative expenses 3,306,235 3,189,988
Lease termination and impairment charges 19,926 32,208
Interest expense 259,642 261,589
Loss on debt modifications and retirements, net 17,842 17,510
Gain on sale of assets, net   (13,005 )   (5,640 )
 
  12,830,619     12,817,659  
 
Loss before income taxes (131,448 ) (155,775 )
Income tax benefit   (64,595 )   (439 )
Net loss $ (66,853 ) $ (155,336 )
 
Basic and diluted loss per share:
 
Numerator for loss per share:
Net loss $ (66,853 ) $ (155,336 )
Accretion of redeemable preferred stock (51 ) (51 )
Cumulative preferred stock dividends   (5,186 )   (4,886 )
Loss attributable to common stockholders - basic and diluted $ (72,090 ) $ (160,273 )
 
 
 
Basic and diluted weighted average shares   888,573     884,768  
 
Basic and diluted loss per share $ (0.08 ) $ (0.18 )
   
RITE AID CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
 
 
Thirteen weeks ended Thirteen weeks ended
September 1, 2012 August 27, 2011
Net loss $ (38,765 ) $ (92,254 )
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   1,019     591  
Total other comprehensive income $ 1,019   $ 591  
Comprehensive loss $ (37,746 ) $ (91,663 )
 
RITE AID CORPORATION AND SUBSIDIARIES
   
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
 
 
Twenty-six weeks ended Twenty-six weeks ended
September 1, 2012 August 27, 2011
Net loss $ (66,853 ) $ (155,336 )
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   2,039     1,181  
Total other comprehensive income $ 2,039   $ 1,181  
Comprehensive loss $ (64,814 ) $ (154,155 )
   
RITE AID CORPORATION AND SUBSIDIARIES
 
SUPPLEMENTAL OPERATING AND CASH FLOW INFORMATION
(Dollars in thousands, except per share amounts)
(unaudited)
 
 
Thirteen weeks ended Thirteen weeks ended
September 1, 2012 August 27, 2011
 
SUPPLEMENTAL OPERATING INFORMATION
 
Revenues $ 6,230,884 $ 6,271,091
Cost of goods sold   4,520,463     4,622,130  
Gross profit 1,710,421 1,648,961
LIFO charge   8,752     20,001  
FIFO gross profit 1,719,173 1,668,962
 
Gross profit as a percentage of revenues 27.45 % 26.29 %
LIFO charge as a percentage of revenues 0.14 % 0.32 %
FIFO gross profit as a percentage of revenues 27.59 % 26.61 %
 
Selling, general and administrative expenses 1,618,169 1,603,752
Selling, general and administrative expenses as a percentage of revenues 25.97 % 25.57 %
 
Cash interest expense 121,383 122,231
Non-cash interest expense   7,671     8,598  
Total interest expense 129,054 130,829
 
 
Adjusted EBITDA 218,653 184,256
Adjusted EBITDA as a percentage of revenues 3.51 % 2.94 %
 
Net loss (38,765 ) (92,254 )
Net loss as a percentage of revenues -0.62 % -1.47 %
 
Total debt 6,158,911 6,191,829
Invested cash   831     1,573  
Total debt net of invested cash 6,158,080 6,190,256
 
 
SUPPLEMENTAL CASH FLOW INFORMATION
 
Payments for property, plant and equipment 70,211 41,531
Intangible assets acquired   11,009     8,375  
Total cash capital expenditures 81,220 49,906
Equipment received for noncash consideration 2,132 1,734
Equipment financed under capital leases   1,369     819  
Gross capital expenditures $ 84,721   $ 52,459  
   
RITE AID CORPORATION AND SUBSIDIARIES
 
SUPPLEMENTAL OPERATING AND CASH FLOW INFORMATION
(Dollars in thousands, except per share amounts)
(unaudited)
 
 
Twenty-six weeks ended Twenty-six weeks ended
September 1, 2012 August 27, 2011
 
SUPPLEMENTAL OPERATING INFORMATION
 
Revenues $ 12,699,171 $ 12,661,884
Cost of goods sold   9,239,979     9,322,004  
Gross profit 3,459,192 3,339,880
LIFO charge   27,502     40,002  
FIFO gross profit 3,486,694 3,379,882
 
Gross profit as a percentage of revenues 27.24 % 26.38 %
LIFO charge as a percentage of revenues 0.22 % 0.32 %
FIFO gross profit as a percentage of revenues 27.46 % 26.69 %
 
Selling, general and administrative expenses 3,306,235 3,189,988
Selling, general and administrative expenses as a percentage of revenues 26.04 % 25.19 %
 
Cash interest expense 244,210 244,423
Non-cash interest expense   15,432     17,166  
Total interest expense 259,642 261,589
 
 
Adjusted EBITDA 492,818 447,110
Adjusted EBITDA as a percentage of revenues 3.88 % 3.53 %
 
Net loss (66,853 ) (155,336 )
Net loss as a percentage of revenues -0.53 % -1.23 %
 
Total debt 6,158,911 6,191,829
Invested cash   831     1,573  
Total debt net of invested cash 6,158,080 6,190,256
 
 
SUPPLEMENTAL CASH FLOW INFORMATION
 
Payments for property, plant and equipment 148,211 90,286
Intangible assets acquired   19,967     16,447  
Total cash capital expenditures 168,178 106,733
Equipment received for noncash consideration 2,132 1,734
Equipment financed under capital leases   5,234     2,381  
Gross capital expenditures $ 175,544   $ 110,848  
 
RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA
(In thousands)
   
 
Thirteen weeks ended Thirteen weeks ended
September 1, 2012 August 27, 2011
 
 
Reconciliation of net loss to adjusted EBITDA:
Net loss $ (38,765 ) $ (92,254 )
Adjustments:
Interest expense 129,054 130,829
Income tax benefit (2,866 ) (2,712 )
Depreciation and amortization 101,999 108,712
LIFO charges 8,752 20,001
Lease termination and impairment charges 7,783 15,118
Stock-based compensation expense 4,695 3,952
Gain on sale of assets, net (2,954 ) (848 )
Gain on debt modifications and retirements, net - (4,924 )
Closed facility liquidation expense 1,411 985
Severance costs (72 ) 305
Customer loyalty card program revenue deferral 4,813 6,885
Other   4,803     (1,793 )
Adjusted EBITDA $ 218,653   $ 184,256  
Percent of revenues 3.51 % 2.94 %
 
RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA
(In thousands)
   
 
Twenty-six weeks ended Twenty-six weeks ended
September 1, 2012 August 27, 2011
 
 
Reconciliation of net loss to adjusted EBITDA:
Net loss $ (66,853 ) $ (155,336 )
Adjustments:
Interest expense 259,642 261,589
Income tax benefit (64,595 ) (439 )
Reduction of tax indemnification asset 60,237 -
Depreciation and amortization 208,370 225,802
LIFO charges 27,502 40,002
Lease termination and impairment charges 19,926 32,208
Stock-based compensation expense 8,653 7,523
Gain on sale of assets, net (13,005 ) (5,640 )
Loss on debt modifications and retirements, net 17,842 17,510
Closed facility liquidation expense 2,867 3,632
Severance costs (72 ) 256
Customer loyalty card program revenue deferral 27,993 28,751
Other   4,311     (8,748 )
Adjusted EBITDA $ 492,818   $ 447,110  
Percent of revenues 3.88 % 3.53 %
   
RITE AID CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
 
 
 
Thirteen weeks ended Thirteen weeks ended
September 1, 2012 August 27, 2011
 
 
OPERATING ACTIVITIES:
Net loss $ (38,765 ) $ (92,254 )
Adjustments to reconcile to net cash used in operating activities:
Depreciation and amortization 101,999 108,712
Lease termination and impairment charges 7,783 15,118
LIFO charges 8,752 20,001
Gain on sale of assets, net (2,954 ) (848 )
Stock-based compensation expense 4,695 3,952
Gain on debt modifications and retirements, net - (4,924 )
Changes in operating assets and liabilities:
Accounts receivable (9,996 ) 12,536
Inventories (10,214 ) (139,804 )
Accounts payable (78,413 ) (23,472 )
Other assets and liabilities, net   (15,773 )   (30,292 )
Net cash used in operating activities (32,886 ) (131,275 )
INVESTING ACTIVITIES:
Payments for property, plant and equipment (70,211 ) (41,531 )
Intangible assets acquired (11,009 ) (8,375 )
Proceeds from sale-leaseback transactions 3,950 -
Proceeds from dispositions of assets and investments   4,617     940  
Net cash used in investing activities (72,653 ) (48,966 )
FINANCING ACTIVITIES:
Net proceeds from revolver - 73,000
Principal payments on long-term debt (7,686 ) (49,296 )
Change in zero balance cash accounts (6,580 ) 3,816
Net proceeds from the issuance of common stock 470 447
Deferred financing costs paid   (1,114 )   -  
Net cash (used in) provided by financing activities   (14,910 )   27,967  
Decrease in cash and cash equivalents (120,449 ) (152,274 )
Cash and cash equivalents, beginning of period   214,774     230,637  
Cash and cash equivalents, end of period $ 94,325   $ 78,363  
   
RITE AID CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
 
 
 
Twenty-six weeks ended Twenty-six weeks ended
September 1, 2012 August 27, 2011
 
 
OPERATING ACTIVITIES:
Net loss $ (66,853 ) $ (155,336 )
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 208,370 225,802
Lease termination and impairment charges 19,926 32,208
LIFO charges 27,502 40,002
Gain on sale of assets, net (13,005 ) (5,640 )
Stock-based compensation expense 8,653 7,523
Loss on debt modifications and retirements, net 17,842 17,510
Changes in operating assets and liabilities:
Accounts receivable 86,389 13,554
Inventories 87,779 (172,290 )
Accounts payable (117,116 ) 151,125
Other assets and liabilities, net   71,230     99,601  
Net cash provided by operating activities 330,717 254,059
INVESTING ACTIVITIES:
Payments for property, plant and equipment (148,211 ) (90,286 )
Intangible assets acquired (19,967 ) (16,447 )
Proceeds from sale-leaseback transactions 3,950 -
Proceeds from dispositions of assets and investments   15,900     9,363  
Net cash used in investing activities (148,328 ) (97,370 )
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 426,263 341,285
Net (repayments to) proceeds from revolver (136,000 ) 45,000
Principal payments on long-term debt (471,323 ) (435,161 )
Change in zero balance cash accounts (48,481 ) (118,281 )
Net proceeds from the issuance of common stock 1,004 504
Financing fees paid for early debt redemption (11,069 ) -
Deferred financing costs paid   (10,743 )   (2,789 )
Net cash used in financing activities   (250,349 )   (169,442 )
Decrease in cash and cash equivalents (67,960 ) (12,753 )
Cash and cash equivalents, beginning of period   162,285     91,116  
Cash and cash equivalents, end of period $ 94,325   $ 78,363  
   
RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF NET LOSS GUIDANCE TO ADJUSTED EBITDA GUIDANCE
YEAR ENDING MARCH 2, 2013
(In thousands, except per share amounts)
 
 
Guidance Range
Low High
 
Sales $ 25,100,000 $ 25,400,000
 
Same store sales (a) -1.0 % 0.25 %
 
Gross capital expenditures $ 300,000 $ 300,000
 
Reconciliation of net loss to adjusted EBITDA:
Net loss $ (196,000 ) $ (69,000 )
Adjustments:
Interest expense 525,000 520,000
Income tax benefit (102,000 ) (104,000 )
Reduction of tax indemnification asset 95,000 95,000
Depreciation and amortization 415,000 410,000
LIFO charge 70,000 40,000
Store closing and impairment charges 100,000 90,000
Stock-based compensation expense 18,000 16,000
Loss on debt modification 18,000 18,000
Customer loyalty card program revenue deferral 28,000 24,000
Other   (6,000 )   (15,000 )
Adjusted EBITDA $ 965,000   $ 1,025,000  
 
 
Diluted loss per share $ (0.23 ) $ (0.09 )
 

(a)

Reflects approximately 650 basis points reduction in pharmacy same store sales from new generic introductions.





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