Rite Aid Corporation (NYSE: RAD) today reported financial results for its third fiscal quarter ended November 27, 2010.
“Based on our third quarter results and our current view that same stores sales in the fourth quarter will be softer than we had expected, we have lowered our guidance for the full year”
The company reported revenues of $6.2 billion, a net loss of $79.1 million or $0.09 per diluted share and Adjusted EBITDA of $212.5 million or 3.4 percent of revenues. Negatively impacting results were a slower start to the cough, cold and flu season coupled with an increase in workers' compensation and general liability self insurance expense.
"The quarter was below our expectations. While the lack of cough, cold and flu had a significant impact on our results, the good news is that our front end sales began to turn around during the quarter and our team continued to do a good job of controlling costs. We are pleased to see that our loyalty program wellness + continues to gain traction with customers and patients," said John Standley, Rite Aid president and CEO.
"Based on our third quarter results and our current view that same stores sales in the fourth quarter will be softer than we had expected, we have lowered our guidance for the full year," Standley said.
Third Quarter Summary
Revenues for the 13-week quarter were $6.2 billion versus revenues of $6.4 billion in last year's like period. Revenues decreased 2.4 percent primarily as a result of a decline in pharmacy same store sales and store closings.
Same store sales for the quarter decreased 1.3 percent over the prior 13-week period, with flat front end sales and a 1.9 percent decrease in the pharmacy. Pharmacy sales included an approximate 242 basis point negative impact from new generic introductions. The number of prescriptions filled in comparable stores decreased 1.7 percent over the prior-year period, negatively impacted 1.3 percent by the lower incidence of cough, cold and flu. Prescription sales accounted for 68.3 percent of total drugstore sales, and third party prescription revenue was 96.2 percent of pharmacy sales.
Net loss was $79.1 million or $0.09 per diluted share compared to last year's third quarter net loss of $83.9 million or $0.10 per diluted share. Lower lease termination and impairment charges, lower LIFO expense, lower interest and securitization expense and a reduction in depreciation and amortization helped offset the impact of the decline in Adjusted EBITDA on net loss.
Adjusted EBITDA (which is reconciled to net loss on the attached table) was $212.5 million or 3.4 percent of revenues for the third quarter compared to $254.2 million or 4.0 percent of revenues for the like period last year. Adjusted EBITDA was negatively impacted by $12.0 million due to fewer cough, cold and flu prescriptions filled year over year and a $29.5 million increase in workers' compensation and general liability self insurance expense. The increase in self insurance expense is due to a reduction of reserves recorded in last year's third quarter because of favorable claims experience.
In the third quarter, the company opened 1 new store, relocated 11 stores, remodeled 15 stores and closed 17 stores. Stores in operation at the end of the quarter totaled 4,731.
Other Events During the Quarter
As previously announced, during the quarter Rite Aid added the Save-A-Lot discount, limited grocery assortment concept to 10 of its existing stores in the Greenville SC market after entering into a licensing agreement with Save-A-Lot, a SUPERVALU company. The stores are co-branded Save-A-Lot Food Stores/Rite Aid Pharmacy and are owned and operated by Rite Aid.
Rite Aid Lowers Fiscal 2011 Guidance
Based on its third quarter results and its lower expectation for same store sales in the fourth quarter, Rite Aid lowered its fiscal 2011 guidance for sales and Adjusted EBITDA and increased fiscal 2011 guidance for net loss. Sales are now expected to be between $25.0 billion and $25.2 billion with same store sales expected to range from a decrease of 1.5 percent to a decrease of 0.9 percent. Adjusted EBITDA is expected to be between $815 million and $855 million. Net loss is expected to be between $655 million or $0.74 per diluted share and $525 million or $0.60 per diluted share. Based upon current spending trends and expectations for the remainder of the year, the guidance for capital expenditures has been reduced to $215 million.