After taking several steps back, drugstore chain

Rite Aid

(RAD) - Get Report

finally took a step forward Tuesday in its efforts at engineering a turnaround.

Shares of Rite Aid were rallying after the company, which almost went bankrupt three years ago amid a wide-ranging accounting scandal, reported a solid first quarter.

The company reported net income of $2.6 million, compared with a loss of $211.1 million a year earlier. On a per-share basis, Rite Aid lost a penny, including a charge for preferred stock dividends that wasn't reflected in the net income figure. The company lost 56 cents in the year-ago period. On average, analysts expected Rite Aid to lose 7 cents a share, according to Thomson Financial/First Call.

Revenue for the quarter was $3.9 billion, vs. $3.7 billion in last year's first quarter.

Perhaps most important, the company said its earnings before interest, taxes, depreciation and amortization, or EBITDA, a measure of cash flow, was better-than-expected at $158.3 million. Cash-flow figures are especially important for investors in Rite Aid because of its history of liquidity problems and accounting irregularities, and executives led off an investor conference call with the EBITDA figure, rather than the earnings numbers.

The company also raised its full-year EBITDA guidance to $545 million to $595 million, from previous guidance of $530 million to $580 million.

The stock was up lately 12 cents, or 4.7%, at $2.67. Still, Rite Aid has fallen about 43% since the beginning of the year and about 70% from its 52-week high, as investors lost faith in the company's ability to pull off a quick turnaround.

Earlier this year shares of Rite Aid tumbled after the company reported a

barrage of bad news, from a wider-than-expected quarterly loss to a lowering of cash-flow guidance.

Of particular concern to investors is the company's huge debt load -- it has some $3.4 billion in long-term debt -- and lagging sales of so-called front-end merchandise, goods such as snacks, lightbulbs and magazines that have higher margins than prescription drugs. In the first quarter, same-store sales for prescription drugs rose 11.8%, while front-end sales grew just 2.7%. This compares with a 4.4% gain in front-end comps that rival

Walgreen

(WAG)

reported in its most recent quarter.

On the conference call, the company said the front-end business has become more promotional. Drugstore chains have seen the

competition ratchet up, and not just from other drugstores, but also from supermarkets and mass merchandisers.

Mary Sammons, Rite Aid's president and chief operating officer, stressed that the company wouldn't slash prices at the expense of profits. "We still intend to be aggressive in driving sales, but sales growth profitably, not sales growth at any expense," she said. "The environment is certainly still promotional."

Rite Aid, the nation's third-largest drugstore chain, said recently that the

Securities and Exchange Commission

ended an investigation into its accounting practices. The probe lasted more than two years and resulted from an accounting scheme that eventually forced the company to reduce its pretax income by $2.3 billion in the largest restatement ever. Rite Aid neither admitted nor denied any of the allegations, and the SEC said the accounting issues were fully addressed by the restatement in 2000.

While Rite Aid got off the hook, its former management didn't, as the SEC recently charged several formal managers with fraud.