Rite Aid finds road to recovery paved with extra cash – News

Rite Aid finds road to recovery paved with extra cash – News – Company Profile

Michael Johnsen

Rite Aid continues to inch toward profitability, having again beaten analyst expectations last month as the company posted commendable third-quarter results. “There’s no question that this company is on solid ground and our business plan is working,” Bob Miller, Rite Aid chairman and chief executive officer, told analysts during a conference call Dec. 19.

In fact, Rite Aid’s hard work has paid off to the tune of a free cash flow of $237 million on its third-quarter balance sheet, prompting the luxury of speculation. Could Rite Aid place those funds against its substantial debt load? Or would the company supplement what has been an anemic annual capital-spending program, as new store growth has slowed to a trickle compared with Rite Aid’s store-acquisition pace in the mid-1990s?

“We’re reviewing … whether we want to increase our capital [spending] substantially or pay down more debt,” commented Miller. “We’re very comfortable with our cash flow… and the debt level we have.”

“I don’t think we’re going to see a dramatic increase in their capital expenditures,” challenged Neil Carrie, retail analyst at UBS Warburg. “The focus really is to try to pay down debt where possible or to buy back some of their bonds.” However, looking forward, Rite Aid will need to balance its debt structure against jump-starting its new store development program in order to maintain its growth prospects, Currie said.

Miller told analysts that because Rite Aid’s new store growth has slowed of late, apple-to-apple comparisons to competitors wit h more aggressive store-opening programs aren’t entirely accurate. He said, “We have not been opening new stores for the last few rears … so we really don’t have that factor contributing to] oar numbers.”

Rite Aid has an aggressive store remodel initiative for fiscal 2004, however, which begins March 2, targeting some 250 stores. Miller said, adding that the chain also has explored relocating stores in its stronger markets: “At this time we have not decided to do that [yet]–our capital plans are still in the $150 million range for next year. But we have the potential with … oar projected free cash flow to certainly invest more money in this company next year if we decide to.”

Rite Aid narrowed its third-quarter loss, reporting a loss of just $16.4 million, or 5 cents per share, for the 39 weeks ended Nov. 30, compared to a loss of $112.2 million, or 23 cents per share, in the year-a go period. The coin p any raised EBITDA guidance for fiscal 2003 to a range of $605 million to $615 million, compared with its previous guidance of $565 million to $600 million. According to Thomson First Call, analysts expected a loss of 9 cents per share.

Same-store sales increased 6.7 percent, while pharmacy same-store sales increased 9.6 percent. Front-end same-store sales increased 1.9 percent during the quarter.

For the fourth quarter, Rite Aid expects same-store sales to increase 6 percent to 7 percent. EBITDA for the fourth quarter is expected to be $160 million to $170 million. This compares with $143.5 million in the year-ago period.

“Our results this quarter and our projections for next year speak for themselves,” Miller said. “Things are better at Rite Aid.”

Growth trends at Rite Aid

Fiscal Capital New Closed Total

year expenditure * stores Remodels Relocations store stores

2000 $573.3 113 14 180 181 3,802

2001 132.5 9 98 63 163 3,648

2002 175.2 17 64 22 168 3,497

2003 + 80.9 3 93 11 89 3,411

* All dollars in millions

+ Reflects results through end of fiscal third quarter; for the fiscal

year ending March 1, Rite Aid Projects total capital expenditures of

$130 million and a total of new stores, 140 remodels and 18 relocations.

Source: Company reports/conference statements

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