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Rite Aid Boasts Small 3rd-Qtr Profit
December 21, 2006 · Reuters
Rite Aid Corp. the No. 3 U.S. drugstore chain, swung to a small quarterly profit on Thursday, as its shoppers filled more prescriptions despite the influx of cheap generic drugs at chains like Wal-Mart Stores Inc.
Rite Aid, which plans to buy the U.S. Eckerd and Brooks chains from Canada's Jean Coutu Group Inc. also stood by its fiscal 2007 financial forecasts.
Shares of Rite Aid rose as much as 4.3 percent on the heels of the results before easing to a 2.2 percent gain at midday.
Rite Aid earned $1.1 million but posted a loss of 1 cent per share for the fiscal third quarter, ended Dec. 2, after paying preferred stock dividends. A year earlier, it posted a net loss of $5.2 million, or 2 cents per share.
Analysts, on average, expected Rite Aid to post a loss of 1 cent per share, according to Reuters Estimates.
"They're showing that they've stabilized their operations, they're getting solid revenue growth and very good expense control," said Morningstar analyst Mitchell Corwin.
Rite Aid has been working on improving operations within its pharmacies and is opening new and remodeled stores with in-store clinics and other amenities to appeal to shoppers.
During a conference call, President and Chief Executive Mary Sammons said that the $4 generic strategy from Wal-Mart and others has had limited impact on Rite Aid's business.
In fact, the number of prescriptions filled in comparable drugstores rose 2.3 percent in the quarter.
Rite Aid and its larger rivals, Walgreen Co. and CVS Corp. assert that they can attract customers with convenient locations and services rather than price-cutting and that the overwhelming majority of their customers have insurance to cover much of their drugs' cost.
Sammons said that Rite Aid does not yet know how the plan for CVS to buy pharmacy benefits manager Caremark Rx Inc. and a higher offer from Express Scripts Inc. will affect the company. She said that Rite Aid has a good relationship with PharmaCare, the PBM owned by CVS, and with Express Scripts, and has no plans to buy a large PBM.
Shareholders are set to vote on the Jean Coutu deal in January. If approved, the acquisition should close shortly after the company's fourth quarter ends on March 3, 2007.
The deal would bring Rite Aid's store count to about 5,170, up from 3,322 stores at the end of the third quarter. It would remain the third-largest chain behind Walgreen and CVS.
On Thursday, Rite Aid said it was responding to a second request from the U.S. Federal Trade Commission for information on the Jean Coutu deal.
For fiscal 2007, Rite Aid still projects a net loss of $5 million to a net profit of $40 million, or a loss of 7 cents per share to a profit of 2 cents per share; sales of $17.4 billion to $17.65 billion; and a same-store sales increase of 2 percent to 4 percent.
Analysts, on average, expect Rite Aid to post a profit of nil per share on revenue of $17.51 billion.
Rite Aid, based in Camp Hill, Pennsylvania, said it now plans to open 110 new and relocated stores this fiscal year, down from an original target of 125, due largely to delays with entitlement and permits.
The company previously said sales rose 4.2 percent to $4.3 billion. Same-store sales, or sales at stores open at least a year, rose 3.4 percent. Same-store sales rose 4.3 percent in the pharmacy and 1.9 percent in the front end of the store.
Shares of Rite Aid were up 10 cents to $5.47 after rising as high as $5.60, their highest level since April 2004.
Shares of Rite Aid had risen 54 percent from the start of the year through Wednesday, far outpacing shares of Walgreen, up 3.1 percent and CVS, up 13.2 percent. Walgreen is expected to report its quarterly results on Friday.