Leading drugstore chain operator Rite Aid Corp. (RAD) posted a net loss of $ 205.7 million in the fourth quarter of fiscal 2011, compared with a loss of $ 208.4 million in the year-ago period. The quarterly loss per share of 24 cents though in line with the prior-year figure came in higher than the Zacks Consensus Estimate of a loss of 21 cents per share. Higher termination and impairment charges offset the positive impact from improved gross margin coupled with lower selling, general and administrative (SG&A) expense and LIFO charge.
For fiscal 2011, the company posted a net loss of $ 555.4 million or 64 cents a share compared with a loss of $ 506.7 million or 59 cents a share reported in the prior-year period. Loss was a penny higher than the Zacks Consensus Estimate of 63 cents a share.
Quarterly Details
Rite Aid’s revenues came in flat at $ 6,456.5 million over the prior year. Same-store sales for the quarter showed a marginal increase of 0.9%. Over the quarter, the company relocated 4 stores, remodeled 2 stores and closed 17 stores. Total revenue beat the Zacks Consensus Estimate of $ 6,379.0 million.
Pharmacy same-store sales increased 0.8%, despite the negative impact of 226 basis points from the introduction of new generic drugs. Prescriptions filled at comparable stores increased 0.8% from the year-ago quarter. Front-end same-stores sales increased 1.0% compared with the year-ago period. Other than prescription drugs, Rite Aid sells a wide assortment of other merchandise, which it terms as "front end" products, including over-the-counter medications, health and beauty aids, personal care items and cosmetics.
Rite Aid’s gross profit improved 1.5% year over year to $ 1700.9 million while gross margin increased 43 basis points to 26.3%. SG&A declined 0.7% year over year to $ 1,630.1 million, mainly due to management’s cost containment initiatives.
The company recorded a 49.8% increase in lease termination and impairment charges to $ 154.1 million, primarily due to higher store closures in the reported quarter. Rite Aid reported adjusted EBITDA of $ 215.4.million, compared with an adjusted EBITDA of $ 205.1 million in the prior-year quarter.
Balance Sheet and Cash Flow
At the end of the quarter, Rite Aid had cash and cash equivalents of $ 91.1 million and long-term debt of $ 6,034.5 million. During the quarter, the company deployed $ 34.5 million toward debt repayment and $ 68.9 million toward capital expenditure.
In fiscal 2012, the company expects to incur capital expenditure of $ 300 million mostly on store remodels and prescription file buys.
Guidance and Zacks Consensus
Looking ahead, Rite Aid expects fiscal 2012 revenue to be between $ 25.7 billion and $ 26.1 billion based on same-store sales increase of 0.5% to 2.0%. Net loss is now expected to be in the range of $ 370 million to $ 560 million (or 42 cents to 64 cents per share). The Zacks Consensus Estimate for fiscal 2012 is currently pegged at a loss of 49 cents a share.
The company competes with retail drugstore chains, independently owned drugstores, supermarkets, mass merchandisers, discount stores, dollar stores, and mail order pharmacies. Competitive pressure in the industry is unlikely to subside with continued consolidation, new store openings, and increased mandatory mail orders. The company’s direct competitors are Walgreen Co. (WAG) and CVS Caremark Corporation (CVS).
We maintain our “Underperform” recommendation on Rite Aid. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward directional pressure on the stock over the near term.
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