Rite Aid swings to fiscal Q1 earnings of US$89.7M from loss of US$28.1M a year ago as sales fall 2.7% to US$6.3B, same-store sales dip 2.5%; CEO says results show 'continued operational and financial progress'

CAMP HILL, Pennsylvania , June 20, 2013 (press release) –

  • First Quarter Net Income of $0.09 per Diluted Share, Compared to Prior First Quarter Net Loss of $0.03 per Diluted Share
  • First Quarter Adjusted EBITDA of $344.8 Million Compared to Adjusted EBITDA of $274.2 Million in Prior First Quarter
  • Expects Combined Annual Cash Interest Savings of $85 Million from the Completed February Refinancing and the Two Recently Announced Refinancings
  • Rite Aid Updates Fiscal 2014 Guidance to Reflect Recent Senior Notes Offer
Rite Aid Corporation (RAD) today reported operating results for its fiscal first quarter ended June 1, 2013. The company reported revenues of $6.3 billion, net income of $89.7 million or $0.09 per diluted share, and Adjusted EBITDA of $344.8 million, or 5.5 percent of revenues.  “We kicked off our new fiscal year by posting strong first-quarter results that reflect our continued operational and financial progress,” said Rite Aid Chairman, President and CEO John Standley. “During the quarter, we generated net income for a third consecutive quarter and increased Adjusted EBITDA by more than $70 million over last year’s first quarter.”

“At the same time, our team’s success in executing key initiatives like our wellness+ customer loyalty program, wellness store remodeling initiative and expanded pharmacy service offerings continue to drive our progress in transforming Rite Aid stores into true neighborhood destinations for health and wellness. We are pleased with our continued progress and remain focused on delivering the best products, service and care to meet our customers’ unique wellness needs.”

First Quarter Summary

Revenues for the 13-week quarter were $6.3 billion versus revenues of $6.5 billion in the prior year first quarter. Revenues decreased 2.7 percent primarily due to the impact of lower cost generics on pharmacy same store sales.

Same store sales for the quarter decreased 2.5 percent over the prior year 13-week period, consisting of a 3.8 percent decrease in pharmacy sales, partially offset by a 0.4 percent increase in front end sales. Pharmacy sales included an approximate 458 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores decreased 0.1 percent over the prior year period. Prescription sales accounted for 67.5 percent of total drugstore sales, and third party prescription revenue was 97.0 percent of pharmacy sales.

 Net income was $89.7 million or $0.09 per diluted share compared to last year’s first quarter net loss of $28.1 million or $0.03 per diluted share. The improvement in net income resulted primarily from an increase in Adjusted EBITDA and decreases in interest and debt retirement expenses. 

Adjusted EBITDA (which is reconciled to net income/loss on the attached table) was $344.8 million or 5.5 percent of revenues for the first quarter compared to $274.2 million or 4.2 percent of revenues for the like period last year. The improvement in Adjusted EBITDA was largely driven by the continued benefit of new generic introductions on pharmacy gross margin, improved front-end gross margin and continued strong expense control. Prior-year first-quarter results also included a $20.9 million charge for a settlement of a series of wage and hour class action lawsuits.

In the first quarter, the company remodeled 108 stores, bringing the total number of wellness stores chainwide to 905. The company closed eight stores, resulting in a total store count of 4,615 at the end of the first quarter.

Refinancing Transactions

 In February 2013, Rite Aid announced the completion of a refinancing of its revolving credit facility and certain first and second lien instruments. In June 2013, Rite Aid commenced the refinancing of its 7.5% second lien notes due 2017, which is expected to close on June 21 and its 9.5% senior notes due 2017, which is expected to close on July 2. These refinancings will extend debt maturities to 2018 and beyond and are expected to result in annual cash interest savings of $85 million. 

Rite Aid Updates Earnings Guidance to Reflect Recent Senior Notes Offer

 Rite Aid has confirmed its fiscal 2014 guidance for sales, same store sales and Adjusted EBITDA, which was updated on June 7, 2013. Sales are expected to be between $24.9 billion and $25.3 billion and same store sales to range from a decrease of 0.75 percent to an increase of 0.75 percent compared to fiscal 2013. Adjusted EBITDA (which is reconciled to net income/loss on the attached table) guidance is expected to be between $1.090 billion and $1.175 billion and net income is expected to be between $22.0 million or $0.01 per diluted share and $162.0 million or $0.16 per diluted share. The net income guidance reflects the anticipated charge from Rite Aid’s recently announced refinancing transactions, as well as the interest savings from those transactions. Capital expenditures are expected to be $400 million. 

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 June 22, 2013. 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 91891667.

Rite Aid is one of the nation’s leading drugstore chains with 4,615 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 adjustments to 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 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)
 
                     
      June 1, 2013     March 2, 2013
ASSETS                    
Current assets:                    
 Cash and cash equivalents     $ 108,902       $ 129,452  
Accounts receivable, net       881,447         929,476  
Inventories, net of LIFO reserve of $927,241 and $915,241       3,135,759         3,154,742  
Prepaid expenses and other current assets       174,776         195,377  
Total current assets       4,300,884         4,409,047  
Property, plant and equipment, net       1,899,831         1,895,650  
Other intangibles, net       444,234         464,404  
Other assets       300,489         309,618  
Total assets     $ 6,945,438       $ 7,078,719  
                     
LIABILITIES AND STOCKHOLDERS' DEFICIT                    
Current liabilities:                    
Current maturities of long-term debt and lease financing obligations     $ 43,401       $ 37,311  
Accounts payable       1,366,036         1,384,644  
Accrued salaries, wages and other current liabilities       1,068,974         1,156,315  
Total current liabilities       2,478,411         2,578,270  
Long-term debt, less current maturities       5,778,652         5,904,370  
Lease financing obligations, less current maturities       89,612         91,850  
Other noncurrent liabilities       956,287         963,663  
Total liabilities       9,302,962         9,538,153  
                     
Commitments and contingencies       -         -  
Stockholders' deficit:                    
Preferred stock - Series G       1         1  
Preferred stock - Series H       184,829         182,097  
Common stock       909,385         904,268  
Additional paid-in capital       4,283,967         4,280,831  
Accumulated deficit       (7,675,600 )       (7,765,262 )
Accumulated other comprehensive loss       (60,106 )       (61,369 )
Total stockholders' deficit       (2,357,524 )       (2,459,434 )
Total liabilities and stockholders' deficit     $ 6,945,438       $ 7,078,719  
                     
 
 RITE AID CORPORATION AND SUBSIDIARIES 
                     
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
                     
                     
     

Thirteen weeks ended

June 1, 2013

   

Thirteen weeks ended

June 2, 2012

Revenues     $ 6,293,057       $ 6,468,287  
Costs and expenses:                    
Cost of goods sold       4,472,066         4,719,516  
Selling, general and administrative expenses       1,609,261         1,688,066  
Lease termination and impairment charges       10,972         12,143  
 Interest expense       113,064         130,588  
Loss on debt retirements, net       -         17,842  
 Gain on sale of assets, net        (5,180 )       (10,051 )
                     
        6,200,183         6,558,104  
                     
 Income (loss) before income taxes       92,874         (89,817 )
 Income tax expense (benefit)        3,212         (61,729 )
 Net income (loss)      $ 89,662       $ (28,088 )
                     
Basic and diluted earnings (loss) per share:                    
                     
Numerator for earnings (loss) per share:                    
Net income (loss)     $ 89,662       $ (28,088 )
Accretion of redeemable preferred stock       (25 )       (25 )
Cumulative preferred stock dividends       (2,732 )       (2,574 )
Income (loss) attributable to common stockholders - basic       86,905         (30,687 )
Add back - Interest on convertible notes       1,364         -  
Add back - Cumulative preferred stock dividends       2,732         -  
Income (loss) attributable to common stockholders - diluted     $ 91,001       $ (30,687 )
                     
                     
                     
Denominator:                    
Basic weighted average shares       893,871         887,516  
Outstanding options and restricted shares       38,812         -  
Convertible notes       24,800         -  
Convertible preferred stock       33,605         -  
                     
Diluted weighted average shares       991,088         887,516  
                     
Basic income (loss) per share     $ 0.10       $ (0.03 )
Diluted income (loss) per share     $ 0.09       $ (0.03 )
                     
 
RITE AID CORPORATION AND SUBSIDIARIES
                   
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(unaudited)
                   
                   
     

Thirteen weeks ended

June 1, 2013

   

Thirteen weeks ended

June 2, 2012

Net income (loss)     $ 89,662     $ (28,088 )
 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       1,263       1,020  
Total other comprehensive income       1,263       1,020  
Comprehensive income (loss)     $ 90,925     $ (27,068 )
                   
 
RITE AID CORPORATION AND SUBSIDIARIES
                     
SUPPLEMENTAL OPERATING AND CASH FLOW INFORMATION
(Dollars in thousands, except per share amounts)
(unaudited)
                     
                     
     

Thirteen weeks ended

June 1, 2013

   

Thirteen weeks ended

June 2, 2012

                     
SUPPLEMENTAL OPERATING INFORMATION                    
                     
Revenues     $ 6,293,057       $ 6,468,287  
Cost of goods sold       4,472,066         4,719,516  
Gross profit       1,820,991         1,748,771  
LIFO charge       12,000         18,750  
FIFO gross profit       1,832,991         1,767,521  
                     
Gross profit as a percentage of revenues       28.94 %       27.04 %
LIFO charge as a percentage of revenues       0.19 %       0.29 %
FIFO gross profit as a percentage of revenues       29.13 %       27.33 %
                     
Selling, general and administrative expenses       1,609,261         1,688,066  
Selling, general and administrative expenses as a percentage of revenues       25.57 %       26.10 %
                     
 Cash interest expense       108,548         122,827  
 Non-cash interest expense       4,516         7,761  
Total interest expense       113,064         130,588  
                     
                     
 Adjusted EBITDA        344,778         274,165  
Adjusted EBITDA as a percentage of revenues       5.48 %       4.24 %
                     
 Net income (loss)        89,662         (28,088 )
Net income (loss) as a percentage of revenues       1.42 %       -0.43 %
                     
Total debt       5,911,665         6,163,405  
Invested cash       1,289         101,985  
Total debt net of invested cash       5,910,376         6,061,420  
                     
                     
SUPPLEMENTAL CASH FLOW INFORMATION                    
                     
Payments for property, plant and equipment       80,906         78,000  
 Intangible assets acquired        11,786         8,958  
Total cash capital expenditures       92,692         86,958  
Equipment received for noncash consideration       -         -  
Equipment financed under capital leases       5,373         3,865  
Gross capital expenditures     $ 98,065       $ 90,823  
                     
 
RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(In thousands)
                     
                     
     

Thirteen weeks ended

June 1, 2013

   

Thirteen weeks ended

June 2, 2012

                     
                     
Reconciliation of net income (loss) to adjusted EBITDA:                    
Net income (loss)     $ 89,662       $ (28,088 )
Adjustments:                    
Interest expense       113,064         130,588  
 Income tax expense (benefit)        3,212         (61,729 )
Adjustments to tax indemnification asset       (613 )       60,237  
Depreciation and amortization       101,246         106,371  
LIFO charge       12,000         18,750  
Lease termination and impairment charges       10,972         12,143  
Stock-based compensation expense       4,240         3,958  
 Gain on sale of assets, net        (5,180 )       (10,051 )
Loss on debt retirements, net       -         17,842  
Closed facility liquidation expense       939         1,456  
Customer loyalty card program revenue deferral       14,602         23,180  
Other       634         (492 )
 Adjusted EBITDA      $ 344,778       $ 274,165  
Percent of revenues       5.48 %       4.24 %
                     
 
RITE AID CORPORATION AND SUBSIDIARIES
                     
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
                     
                     
     

Thirteen weeks ended

June 1, 2013

   

Thirteen weeks ended

June 2, 2012

                     
                     
OPERATING ACTIVITIES:                    
Net income (loss)     $ 89,662       $ (28,088 )
Adjustments to reconcile to net cash provided by operating activities:                    
Depreciation and amortization       101,246         106,371  
Lease termination and impairment charges       10,972         12,143  
LIFO charge       12,000         18,750  
Gain on sale of assets, net       (5,180 )       (10,051 )
Stock-based compensation expense       4,240         3,958  
Loss on debt retirements, net       -         17,842  
Changes in operating assets and liabilities:                    
Accounts receivable       47,797         96,385  
Inventories       6,935         97,993  
Accounts payable       (15,547 )       (38,703 )
Other assets and liabilities, net       (67,678 )       87,003  
Net cash provided by operating activities       184,447         363,603  
INVESTING ACTIVITIES:                    
Payments for property, plant and equipment       (80,906 )       (78,000 )
Intangible assets acquired       (11,786 )       (8,958 )
Proceeds from sale-leaseback transactions       3,989         -  
Proceeds from dispositions of assets and investments       6,610         11,283  
Net cash used in investing activities       (82,093 )       (75,675 )
FINANCING ACTIVITIES:                    
Proceeds from issuance of long-term debt       -         426,263  
Net payments to revolver       (123,000 )       (136,000 )
Principal payments on long-term debt       (4,378 )       (463,637 )
Change in zero balance cash accounts       (867 )       (41,901 )
Net proceeds from the issuance of common stock       6,744         534  
Financing fees paid for early debt redemption       -         (11,069 )
Deferred financing costs paid       (1,403 )       (9,629 )
Net cash used in financing activities       (122,904 )       (235,439 )
 (Decrease) increase in cash and cash equivalents       (20,550 )       52,489  
Cash and cash equivalents, beginning of period       129,452         162,285  
Cash and cash equivalents, end of period     $ 108,902       $ 214,774  
                     
 
RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF NET INCOME GUIDANCE TO ADJUSTED EBITDA GUIDANCE
YEAR ENDING MARCH 1, 2014
(In thousands, except per share amounts)
                     
                     
      Guidance Range
      Low     High
                     
Sales     $ 24,900,000       $ 25,300,000  
                     
Same store sales (a)       -0.75 %       0.75 %
                     
Gross capital expenditures     $ 400,000       $ 400,000  
                     
 Reconciliation of net income to adjusted EBITDA:                     
Net income     $ 22,000       $ 162,000  
Adjustments:                    
 Interest expense       432,000         429,000  
 Income tax benefit        (27,000 )       (28,000 )
Adjustments to tax indemnification asset       30,000         30,000  
Depreciation and amortization       405,000         400,000  
LIFO charge       60,000         35,000  
Store closing and impairment charges       80,000         70,000  
Stock-based compensation expense       18,000         17,000  
 Loss on debt retirement       63,000         63,000  
Customer loyalty card program revenue deferral       5,000         -  
Other       2,000         (3,000 )
 Adjusted EBITDA      $ 1,090,000       $ 1,175,000  
                     
                     
Diluted income per share     $ 0.01       $ 0.16  
 
       
(a)     Reflects approximately 250 basis points reduction in pharmacy same store sales from new generic introductions.
       

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