, the drugstore chain that only last year teetered on the edge of bankruptcy, pleased Wall Street on Tuesday by posting strong financial results and slashing its debt load.
The nation's third-largest drugstore chain posted a narrower loss than Wall Street expected, though analysts say much progress has yet to be made on that front. Rite Aid also outlined a series of steps that will cut interest payments and put the company in position to refinance coming debt obligations. The stock jumped 9% as Wall Street rejoiced about the company's apparent victory over liquidity worries.
"I think the stock is headed higher," says Eric Bosshard, an analyst at
, an independent research firm without an investment banking business. "The question now is how great the earnings potential is, rather than if the company is going bankrupt." (Bosshard, one of the few analysts who still officially follows the company, has a neutral rating on the stock.)
The faster-than-expected debt reduction puts the company in a good position to refinance $2.1 billion of debt that will come due in August and September of 2002, Rite Aid Chairman and CEO Bob Miller said in a statement. The company still has about $4.4 billion in long-term debt on its books.
The company has long been
beset by numerous problems, ranging from overexpansion to taking on too much debt to accounting irregularities, and is still early in its turnaround efforts. The company still faces civil and criminal inquiries into its accounting practices, what one shareholder lawsuit alleges was one of "the most massive accounting frauds in American corporate history," stemming from allegations the company manipulated its earnings in 1997, 1998 and 1999, according to the bankruptcy news Web site
. The company was forced to announce a $1.6 billion earnings revision last summer.
As part of its efforts to put its financial house in order, the company closed 98 stores during the quarter, and now operates about 3,600 stores in 30 states.
The Camp Hill, Pa.-based company is still far from being profitable. The company posted a 22-cent loss from continuing operations, excluding charges stemming from the store closings, for the fourth quarter, 7 cents better than Wall Street expected, according to
Thomson Financial/First Call
. Because of the company's financial mess, there is no year-earlier comparison.
Revenue for the quarter rose to $4.1 billion from $3.5 billion in the same period last year, with the latest quarter lasting an extra week. Comparable-store sales, which gauge sales in stores open at least a year and are a key financial benchmark for the retail sector, rose 10.6% in the quarter.
In addition to easing bankruptcy concerns, the company also reported better-than-expected cash flow numbers, says Midwest Research's Bosshard. For the quarter the company reported $179.2 million in EBITDA, or earnings before interest, taxes, depreciation and amortization, a measure of cash flow investors and analysts watch for capital-intensive businesses. This figure represents 4.4% of sales, in the same ballpark as that of industry leaders
The bankruptcy question has been answered. The profit question remains.