Rebound Resumes at Rite Aid - TheStreet

Rebound Resumes at Rite Aid

The drugstore chain reverses its year-ago loss and raises guidance.
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Rite Aid's

(RAD) - Get Report

turnaround took another step forward on Thursday, as the company turned a year-ago loss into a profit and raised guidance for next year.

Investors responded positively to the company's report. Shortly before 11 a.m. EST, Rite Aid shares were up 17 cents, or 2.8%, to $6.23.

In its quarter ended Nov. 29, the drugstore chain earned $14.4 million, or 3 cents a share. In the year-ago period, the company lost $23.8 million, or 5 cents a share.

The company's sales rose 6% over the third quarter last year to $4.11 billion.

The results topped Wall Street's expectations. Analysts polled by Thomson First Call were expecting Rite Aid to earn 2 cents a share on $4.10 billion in sales.

For its full fiscal year, Rite Aid expects its results to range from a net loss of $13 million to net income of $15 million on sales of $16.5 billion to $16.7 billion. The company did not provide per-share earnings guidance, but assuming its share count remains the same at 515 million, the guidance implies full-year results ranging from a net loss of 3 cents a share to net income of 3 cents a share.

Considering the company has lost 8 cents a share in the year to date, the guidance also implies that the company expects to earn between 5 cents and 11 cents a share in its fourth quarter on sales ranging from about $4.3 billion to $4.5 billion. Wall Street had projected the company would earn 8 cents a share in the current quarter -- the midpoint of Rite Aid's range -- on sales of $4.38 billion.

For 2005, the company forecast that it will earn $112 million to $157 million -- about 22 cents to 30 cents a share, given its current share count -- on sales of $17.4 billion to $17.6 billion. The consensus of analysts was that the company would earn 21 cents a share on sales of $17.6 billion.

Same-Store Success

Solid sales at its older stores helped Rite Aid turn around its third-quarter results from the year-ago period.

During the quarter, the company's same-store sales, which compare like results at outlets open for more than one year, grew by 6.4%. In the year-ago period, Rite Aid's same-store sales grew by 6.7%.

Growth in the company's prescription drug sales slowed year-over-year, as same-store pharmacy sales grew by 6.5% in the just-completed quarter compared with 9.6% a year ago. But sales of front-end products, which include nonprescription drugs and general merchandise, picked up from the year-ago period. Sales of such products increased 6.2% in the just-completed quarter, compared to a 1.9% gain in the third quarter last year.

Meanwhile, Rite Aid kept its costs under control during the third quarter. Its gross profit margin increased by 63 basis points as a portion of sales from the year-ago quarter to 24.38%. Gross margin represents the difference between what it charges customers for its products and its direct costs of providing those products, including vendor and occupancy costs.

In contrast to its gross margin, Rite Aid's marketing, general and administrative costs fell 36 basis points to 21.57% of sales.