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'
Cindy Allen
CAMP HILL, Pennsylvania
,
June 20, 2013
(press release)
–
“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. Thirteen weeks ended June 1, 2013 Thirteen weeks ended June 2, 2012 Thirteen weeks ended June 1, 2013 Thirteen weeks ended June 2, 2012 Thirteen weeks ended June 1, 2013 Thirteen weeks ended June 2, 2012 Thirteen weeks ended June 1, 2013 Thirteen weeks ended June 2, 2012 Thirteen weeks ended June 1, 2013 Thirteen weeks ended June 2, 2012
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.”
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)
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)
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)
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)
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)
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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