Rite Aid posts loss, expands plan to close stores

Tuesday, Oct. 12, 1999 | 11:01 a.m.

BLOOMBERG NEWS

CAMP HILL, Pa. -- Rite Aid Corp., the No. 3 U.S. drugstore chain, said Monday it had a fiscal second-quarter loss on the costs of closing stores, higher interest payments and slowing West Coast sales.

The company said it had a loss of about $67.9 million, or 26 cents a share. Rite Aid is restating its earnings for last year and the previous two years. Sales rose 17 percent to $3.51 billion from $3.01 billion for the quarter ended Aug. 28.

Rite Aid's shares have fallen 74 percent this year, the second-biggest drop in the Standard & Poor's 500 Index, as the retailer restated three years of earnings, Florida accused it of overcharging customers and it struggled to integrate purchases. The retailer has said it may sell part of its PCS Health Systems unit and hundreds of West Coast stores to help reduce debt.

"One thing feeds on another and there's a lot of negative momentum in this company," said Mark Husson, a Merrill Lynch & Co. analyst who rates the stock intermediate-term "neutral."

The results were released after the close of the New York Stock Exchange, where Rite Aid rose 5/16 to 12 13/16. The only company in the S&P 500 Index that's dropped more the past year is Service Corp. International.

Rite Aid cut to 250 to 260 the number of stores it plans to open or move this fiscal year and 150 the following year -- less than last year's roughly 570 stores.

The company, which originally said it might sell 250 West Coast stores, said during a conference call that number could rise to 350. The sale of 200 to 350 stores would raise gross proceeds of $400 million to $600 million, executives said.

"We are disappointed with second-quarter results, but we believe we are taking the steps necessary to deliver better operating results and to restore the financial health of the business," said Chairman and Chief Executive Martin Grass in a statement. "The fundamentals of the business are intact."

The quarter's loss includes a pretax charge of about $34 million for closing or moving 106 stores.

Interest costs rose $49 million, mostly for financing the $1.5 billion purchase of PCS, one of the largest U.S. managers of prescription-drug benefits programs.

Rite Aid last week said it hired J.P. Morgan & Co. to help evaluate offers for the unit. Rite Aid executives said they could sell the unit outright or sign a contract with the buyer to keep the advantages of being tied to that business.

The Camp Hill, Pa.-based company was expected to earn 24 cents a share, down from 27 cents a month ago, according to analysts polled by First Call Corp. Estimates ranged from 17 cents to 30 cents.

Sales at stores open a year or more rose 8 percent. The 3,857-stores chain trails Walgreen Co. and CVS Corp. in sales.

Rite Aid is trying to conserve cash, particularly after Moody's Investor's Service and Standard & Poor's Corp. cut their ratings on its senior debt. It has about $4.5 billion in debt.

The company in March said its rapid expansion and ballooning costs would pull fourth-quarter earnings well short of forecasts, sending its shares tumbling 39 percent.

In June, the company restated three years of earnings after a review of its accounting practices by the Securities and Exchange Commission. That same month, CFO Frank Bergonzi announced his resignation.

Rite Aid has blamed its turmoil on difficulty integrating numerous acquisitions, such as the 1996 purchase of Thrifty Payless Holdings.

The company has also been looking to sell about 250 larger, underperforming stores on the West Coast that it acquired with Thrifty Payless. Last month, it agreed to sell 38 stores in California to Longs Drug Stores Corp. for $186 million.

In Florida's civil racketeering lawsuit filed last month, the state alleges Rite Aid overcharged 29,000 uninsured prescription-drug customers. The company called the suit groundless.

Last month, Rite Aid said it will cut 330 corporate and regional jobs, and will close a distribution plant in Ogden, Utah, eliminating 500 jobs.