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Updated from 9:21 a.m. EDT

Shares of

Rite Aid

(RAD) - Get Rite Aid Corporation Report

tumbled Thursday after the pharmacy chain reported a drop in first-quarter earnings amid lower profit margins and costs related to new store openings.

The company said it earned $10.9 million, or a penny a share, in the quarter, compared with the $33.4 million, or 5 cents a share, it earned a year earlier. The results missed analysts' average forecast for earnings of 3 cents a share, based on estimates compiled by Thomson First Call.

Shares of Rite Aid recently were down 40 cents, or 8.8%, to $4.15.

On an adjusted basis, the drugstore chain said it earned $180.4 million before interest, taxes, depreciation and amortization in the quarter, representing 4.2% of revenue. A year ago, the figure was $203.6 million, or 4.8% of revenue.

"The $23.2 million decrease is primarily the result of an increase in selling, general and administrative expenses, due in large part to an increase in occupancy costs resulting from the opening of new and relocated stores," Rite Aid said.

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On a conference call with analysts, President and Chief Executive Mary Simmons said the store relocations and new store openings were part of its long-term strategy to increase value for shareholders, and the extra costs were expected.

During the quarter, the company opened three stores, acquired two more and relocated four. Rite Aid also closed seven stores and remodeled 13. At the end of the period, it was operating 3,321 stores. Higher stores occupancy costs boosted the company's selling, general and administrative costs as a percentage of sales by 22 basis points.

"Basically, Rite Aid is playing defense," says Morningstar analyst Mitchell Corwin. "It's trying to protect its market share in existing markets, and part of that is relocating some of their underperforming stores in higher traffic areas."

Despite the squeeze on its bottom line, Rite Aid kept its earnings forecast for the year in place, projecting results in a range from a loss of 7 cents a share to earnings of 2 cents a share.

Meanwhile, the company touted its improved sales and raised its top-line target for the year. Rite Aid now expects sales of $17.40 billion to $17.65 billion on a same-store sales gain between 2% and 4%. Previously, it projected sales for the year in a range from $17.35 billion to $17.60 billion, with same-store sales rising 1.75% to 3.25%.

For the first quarter, Rite Aid posted a 2.7% increase in sales to $4.34 billion, with a 3.6% rise in same-store sales. Mark Husson, an analyst with HSBC Securities, says sales have improved across the pharmacy industry due to the new Medicare prescription drug program recently put into effect by the federal government.

"This doesn't mean that Rite Aid has really started a sustained turnaround yet," says Husson.

He says a significant part of Rite Aid's shortfall on its bottom line stemmed from lower gross margins on its front-end, or non-pharmacy, offerings, which make up 36% of its business.

"Everything has to go right in the second-half of this year for them just to make their number," says Husson. "They haven't got off to a very good start."