Rite Aid Reports Fourth Quarter and Full Year Fiscal 2009 Results

Rite Aid Corporation (NYSE: RAD) today reported financial results for the fourth quarter and year ended February 28, 2009.

For the fourth quarter, the company reported revenues of $6.7 billion, a net loss of $2.3 billion or $2.67 per diluted share and adjusted EBITDA of $261.4 million.

Net loss for the quarter was impacted by significant non-cash charges resulting from goodwill impairment, store impairment and an additional tax valuation allowance against deferred tax assets. These non-cash charges have no impact on the company’s business operations, liquidity, credit facilities or compliance with existing debt covenants. Excluding these non-cash charges, net loss for the fourth quarter was $116.9 million or $0.14 per diluted share.

The one-time non-cash goodwill impairment charge accounted for $1.81 billion or $2.10 per diluted share of the fourth quarter net loss. Similar to the recent experiences of other companies, Rite Aid was required by generally accepted accounting principles (GAAP, SFAS No. 142) to take a goodwill impairment charge, which is primarily the result of the company’s sustained low stock price and resulting market capitalization. The company wrote off all of its goodwill, of which approximately $1.2 billion is related to the Brooks Eckerd acquisition.

Adjusted EBITDA (which is reconciled to net loss on the attached table) of $261.4 million or 3.9 percent of revenues for the fourth quarter compared to $276.3 million or 4.1 percent of revenues for the like period last year. The $14.9 million decline was caused by higher union health and welfare contributions, higher occupancy costs as a result of sale leaseback transactions and higher accounts receivable securitization costs.

Fourth Quarter Highlights

• Core Rite Aid pharmacy same store sales increases were strong in the fourth quarter and throughout the year, especially in light of the industrywide downturn in prescription sales and the increase in the company’s dispensing of generic prescriptions, which negatively impacts sales but improves margin.
• Pharmacy same store sales trends in the acquired stores improved every quarter in fiscal 2009, narrowing to a decline of 1.9 percent in the fourth quarter compared to a 2.6 percent decline in the third quarter.
• The company generated positive cash flow from operations of $324.8 million in the fourth quarter.
• Significant progress in reducing selling, general and administration (SG&A) costs continued in the fourth quarter.
• FIFO inventory was $243.6 million lower in the fourth quarter compared to last year and $379.3 million lower than the third quarter of this year.
• The company maintained access to accounts receivable financing with renewal and completion of first and second lien securitization facilities.
• Net cash from operations, including inventory reduction, and reduced capital expenditures contributed to availability of $723.7 million under the company’s revolving credit facility at year end.

“Despite continued weakness in the economy, we were able to improve our business significantly in the second half of the year as we completed the integration of Brooks Eckerd, enhanced our management team and focused on strengthening our financial position. We made good progress operating our stores more efficiently, taking costs out of the business and reducing working capital, especially in the fourth quarter. As a result, we ended the year with our strongest liquidity position in more than a year,” said Mary Sammons, Rite Aid chairman and CEO.

Commenting on the goodwill impairment, Sammons said, “This is a charge dictated by accounting rules. We believe the impairment related to the Brooks Eckerd acquisition is not a true reflection of the long-term benefit we expect to see from our acquired stores.”

Fourth Quarter Summary

Revenues for the 13-week fourth quarter were $6.7 billion versus revenues of $6.8 billion in the prior year fourth quarter. Revenues decreased 1.7 percent, primarily as a result of 158 fewer stores this quarter as compared to the previous fourth quarter.

Same store sales for the quarter decreased 0.1 percent over the prior year 13-week period, consisting of a 2.0 percent decrease in the front end and a 0.8 percent increase in the pharmacy. Pharmacy sales included an approximate 301 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores decreased 0.9 percent, negatively impacted by the acquired stores. The number of prescriptions filled increased in core Rite Aid stores. Prescription sales accounted for 66.6 percent of total drugstore sales, and third party prescription revenue was 96.3 percent of pharmacy sales.

Excluding the acquired Brooks Eckerd stores, same stores sales for the 13-week fourth quarter increased 0.8 percent over the prior-year period with front end same store sales decreasing 1.9 percent and pharmacy same store sales growing 2.4 percent.

At the Brooks Eckerd stores, same store sales for the 13-week fourth quarter decreased 1.9 percent over the prior-year period. Front end same store sales decreased 2.1 percent in the fourth quarter and pharmacy same store sales decreased 1.9 percent.

The fourth quarter net loss of $2.3 billion or $2.67 per diluted share compares to last year’s fourth quarter net loss of $952.2 million or $1.20 per diluted share. Excluding non-cash charges, net loss for the fourth quarter was $116.9 million or $0.14 per diluted share. The significant non-cash charges include 1) a one-time non-cash charge of $1.81 billion or $2.10 per share for goodwill impairment, 2) a non-cash income tax charge of $280.7 million or $0.33 per share from the recording of additional valuation allowance against deferred tax assets and 3) a non-cash charge of $85.8 million or $0.10 per share related to store impairment. These items accounted for $2.2 billion or $2.53 per diluted share of the net loss. The LIFO charge was $94.6 million or $0.11 per share. Last year’s fourth quarter included a non-cash charge of $894.9 million or $1.12 per share to record a valuation allowance against deferred tax assets.

In the fourth quarter, the company opened 6 stores, relocated 10 stores, and closed 19 stores. Stores in operation at the end of the fourth quarter totaled 4,901.

Full Year Results

For the 52-week fiscal year ended February 28, 2009, Rite Aid had revenues of $26.3 billion as compared to revenues of $24.3 billion for the 52-week prior year. Revenues increased 8.1%, primarily driven by an additional quarter of sales for the Brooks Eckerd stores, which the company acquired on June 4, 2007.

Same store sales for the year, which include 39 weeks of the acquired stores, increased 0.8 percent over the prior 52-week comparable period. This increase consisted of a 0.9 percent front-end same store sales increase and a 0.7 percent increase in pharmacy same store sales. The number of prescriptions filled in same stores decreased 0.96 percent, negatively impacted primarily by the acquired stores. Prescription revenue accounted for 67.2 percent of total sales, and third party prescription revenue was 96.3 percent of pharmacy sales.

Net loss for fiscal 2009 was $2.9 billion or $3.49 per diluted share compared to last year’s net loss of $1.1 billion or $1.54 per diluted share. Excluding significant non-cash charges, net loss for the year was $640 million or $0.79 per diluted share. The significant non-cash charges include 1) a non-cash charge of $1.81 billion for goodwill impairment, 2) a non-cash income tax charge of $307.7 million from the recording of additional valuation allowance against deferred tax assets and 3) a non-cash charge of $157.3 million related to store impairment. These items accounted for $2.2 billion or $2.70 per diluted share of the net loss. The LIFO charge was $184.6 million or $0.22 per share.

As computed on the attached table, adjusted EBITDA of $965.1 million or 3.7 percent of revenues for the year compared to $962.8 million or 4.0 percent of revenues for last year.

For the year, the company opened 33 new stores, relocated 56 stores, remodeled 70 stores, acquired 9 stores, and sold or closed 200 stores. Stores in operation at the end of the year totaled 4,901.

Outlook for Fiscal 2010

The company said that in fiscal 2010 it will continue to focus on its initiatives to grow profitable sales, reduce operating expenses through additional efficiencies, improve working capital, take unnecessary costs out of the business and reduce capital expenditures.

“We are pleased with the results we have seen so far from these initiatives, and expect them to deliver greater benefits in fiscal 2010 and help us manage through this difficult operating environment,” Sammons said. “We are focused on improving cash flows and expect to be in a position to start reducing our debt this year.”

Given the uncertainty of the retail environment, Rite Aid said it expects sales to be between $26.3 billion and $26.7 billion in fiscal 2010 with same store sales improving 0.5 to 2.5 percent over fiscal 2009.

Adjusted EBITDA (which is reconciled to net loss on the attached table) is expected to be between $1.025 billion and $1.125 billion. Accounts receivable securitization costs, which accounted for $26 million of adjusted EBITDA in fiscal 2009, will be excluded from adjusted EBITDA in fiscal 2010.

Net loss for fiscal 2010 is expected to be between $210 million and $435 million or a loss per diluted share of $.26 to $.53. Capital expenditures are expected to be approximately $250 million.

Update On Proposed Reverse Stock Split

As previously announced, Rite Aid has delayed effecting the company’s proposed reverse stock split following the New York Stock Exchange’s (NYSE) suspension of its minimum share price listing rule until June 30, 2009. The suspension provides the company with additional time and flexibility to regain compliance with the rule. Stockholders have approved a 1-for-10, 1-for-15 or 1-for-20 reverse stock split exchange ratio.

Per the rules of the suspension, Rite Aid can now regain compliance by achieving the required $1.00 closing share price and $1.00 average closing share price over the preceding 30 consecutive days on any of the following dates: April 16, 2009; April 30, 2009; May 29, 2009; June 30, 2009; and August 17, 2009. Rite Aid’s Board of Directors will determine the exchange ratio and timing of the reverse stock split, if implemented, prior to or immediately following the end of the suspension period based on market conditions, the company’s share price and NYSE rules at such time. Rite Aid continues to be listed and trade as usual on the NYSE.

Conference Call Broadcast

Rite Aid will hold an analyst call at 8:30 a.m. Eastern Time today with remarks by Rite Aid's management team. The call will be simulcast via the internet and can be accessed through the websites www.riteaid.com in the conference call section of investor information and www.StreetEvents.com. Slides related to materials discussed on the call will be available on both sites. A playback of the call will be available on both sites starting at 2 p.m. Eastern Time today. A playback of the call will also be available by telephone for 48 hours beginning at 12 p.m. Eastern Time today until 12 p.m. Eastern Time on April 4. The playback number is 1-800-642-1687 from within the U.S. and Canada or 1-706-645-9291 from outside the U.S. and Canada with the eight-digit reservation number 90511456.

Rite Aid Corporation is one of the nation’s leading drugstore chains with more than 4,900 stores in 31 states and the District of Columbia. Information about Rite Aid, including corporate background and press releases, is available through the company’s website at http://www.riteaid.com.

This press release contains forward-looking statements, including guidance, which are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially from those expressed or implied in such forward-looking statements include our high level of indebtedness and our ability to refinance our indebtedness on terms favorable to us; our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our senior secured credit facility and other debt agreements; our ability to improve the operating performance of our stores in accordance with our long term strategy, our ability to realize the benefits of the Brooks Eckerd acquisition, including positive same store sales growth for Brooks Eckerd and cost savings; our ability to hire and retain pharmacists and other store personnel; the efforts of private and public third-party payors to reduce prescription drug reimbursements and encourage mail order; competitive pricing pressures, including aggressive promotional activity from our competitors; our ability to manage expenses; our ability to realize the benefits from actions to further reduce costs and investment in working capital; continued consolidation of the drugstore industry; changes in state or federal legislation or regulations; the outcome of lawsuits and governmental investigations; the timing and effects of our proposed reverse stock split; general economic conditions and inflation and interest rate movements and access to capital, including our continuing ability to complete sale and leaseback transactions. Consequently, all of the forward-looking statements made in this press release, including our guidance, are qualified by these and other factors, risks and uncertainties. Readers are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission. Forward-looking statements can be identified through the use of words such as "may", "will", "intend", "plan", "project", "expect", "anticipate", "could", "should", "would", "believe", "estimate", "contemplate", and "possible".

See the attached table for a reconciliation of a non-GAAP financial measure, Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure. We define Adjusted EBITDA as net income (loss) from operations excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments, charges or credits for store closing and impairment, inventory write-downs related to closed stores, stock-based compensation expense, debt modifications and retirements, sale of assets and investment, securitization costs (for fiscal 2010) and other non-recurring items. We reference this non-GAAP financial measure frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods and external comparisons to competitors’ historical operating performance. In addition, incentive compensation is based on Adjusted EBITDA and we base our forward-looking estimates on Adjusted EBITDA to facilitate quantification of planned business activities and enhance subsequent follow-up with comparisons of actual to planned Adjusted EBITDA. We include this non-GAAP financial measure in our earnings announcement in order to provide transparency to our investors and enable investors to better compare our operating performance with the operating performance of our competitors.