CAMP HILL, Pa. – For the second quarter ended Sept. 1, Rite Aid Corp. (NYSE: RAD) today posted a loss of $69.6 million, or 10 cents per diluted share, compared with a loss of $0.3 million, or 2 cents per diluted share in the same quarter last year. Second-quarter revenue increased 53.9 percent to $6.60 billion from $4.29 billion in the second quarter of fiscal 2007.
The results include figures from the Brooks Eckerd stores and distribution centers the company acquired on June 4 for $2.54 billion from Canada’s Jean Coutu Group Inc.
Expenses related to the Brooks Eckerd acquisition outweighed a $106.8 million increase in second-quarter earnings before interest, tax, depreciation and amortization (EBITDA) to $261.5 million, and an income-tax benefit of $36.1 million, Rite Aid said. Dragging down earnings were: a $65.2 million increase in depreciation and amortization expenses; a $55.1 million increase in interest costs; a one-time financing charge of $12.9 million; a $6.7 million increase in stock-based compensation expenses; and $52.1 million in integration expenses.
Same-store sales (excluding former Brooks and Eckerd stores) increased 1.1 percent year-over-year, as pharmacy sales rose 1.4 percent and front-end sales edged up 0.4 percent.
“We had a strong second quarter,” Mary Sammons, Rite Aid’s chairman, president and CEO, said in a statement released today. “We grew our business, improved the gross margin rate and controlled expenses. Our integration of Brooks Eckerd is off to an excellent start, and we’re seeing more cost-saving synergies from the acquisition than we initially expected.”
The company acquired 1,854 Brooks Eckerd stores during the second quarter, acquired one other store, opened 11 stores, relocated eight and closed or sold 56 – including the 23 divestitures required by the Federal Trade Commission – leaving it with 5,142 stores in operation nationwide on Sept. 1.
“At the same time we’re converting the acquired stores to Rite Aid, we’re also continuing our organic store growth and remain on target to open 125 new and relocated stores this year,” Sammons said. “We’re on track to deliver the full potential of a bigger and better Rite Aid.”
The company today boosted its estimate of acquisition-related synergies, saying it expects to realize savings of about $200 million in fiscal 2008, up from its previous estimate of $155 million. Most of the savings will come in the areas of merchandising, purchasing, advertising, distribution and administration, Rite Aid said.
But it pared its estimate of total sales in fiscal 2008 to between $24.5 billion and $25.1 billion, down from the company’s previous estimate of $25.3 billion to $26.0 billion.
“Based primarily on recent market changes in interest rates and an increase in amortization expense related to acquired intangible assets,” the report said, Rite Aid now predicts a fiscal 2008 loss of $78 million to $161 million, or 15 cents to 27 cents per diluted share, up from its previous forecast of a full-year loss of $47 million to $129 million or 11 to 23 cents per diluted share.
“They were overly aggressive in their sales target and they realized they are not getting there,” Carla Casella, a fixed-income analyst at J.P. Morgan Securities Inc. in New York, told Bloomberg News. “It’s more coming from the Rite Aid business.”
Rite Aid Corp. (NYSE: RAD), based in Camp Hill, Pa., is the third-largest drugstore chain nationwide and the largest on the East Coast. Additional information is available at www.riteaid.com.
