News Column

Rite Aid Reports Net Income of $41.4 Million and Adjusted EBITDA Of $282.6 Million for First Quarter Fiscal 2015

June 19, 2014

  • First Quarter Net Income of $41.4 Million and Net Income per Diluted Share of $0.04, Compared to Prior Year’s First Quarter Net Income of $89.7 Million and Net Income per Diluted Share of $0.09
  • First Quarter Adjusted EBITDA of $282.6 Million Compared to Adjusted EBITDA of $344.8 Million in Prior First Quarter
  • Rite Aid Confirms Outlook for Fiscal 2015

    CAMP HILL, Pa.--(BUSINESS WIRE)-- Rite Aid Corporation (NYSE:RAD) today reported operating results for its fiscal first quarter ended May 31, 2014. The company reported revenues of $6.5 billion, net income of $41.4 million or $0.04 per diluted share, and Adjusted EBITDA of $282.6 million, or 4.4 percent of revenues.

    “In the first quarter, we delivered a strong store operating performance, highlighted by increases in same-store sales and same-store prescription count,” said Rite Aid Chairman and CEO John Standley. “As we work through managing the higher-than-expected drug costs and reimbursement rate pressure that affected our financial results for the quarter, we remain focused on executing our strategy to expand our health care offering and transform Rite Aid into a growing retail health care company.”

    First Quarter Summary

    Revenues for the quarter were $6.5 billion versus revenues of $6.3 billion in the prior year’s first quarter. Revenues increased 2.7 percent primarily as a result of an increase in pharmacy same store sales.

    Same store sales for the quarter increased 3.1 percent over the prior year. Front-end same store sales were flat compared to the prior-year period while pharmacy same store sales increased 4.6 percent. Pharmacy sales included an approximate 143 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores increased 2.3 percent over the prior year period. Prescription sales accounted for 68.4 percent of total drugstore sales, and third party prescription revenue was 97.4 percent of pharmacy sales.

    Net income was $41.4 million or $0.04 per diluted share compared to last year’s first quarter net income of $89.7 million or $0.09 per diluted share. The decline in net income resulted primarily from a decrease in Adjusted EBITDA and higher income tax expense, partially offset by lower interest expense and a lower LIFO charge.

    Adjusted EBITDA (which is reconciled to net income on the attached table) was $282.6 million or 4.4 percent of revenues for the first quarter compared to $344.8 million or 5.5 percent of revenues for the like period last year. The decrease in Adjusted EBITDA was driven by a reduction in pharmacy gross profit due to lower reimbursement rates that were not offset with reductions in generic costs, as well as higher salary and payroll related expenses.

    In the first quarter, the company relocated 3 stores, remodeled 105 stores and expanded 1 store, bringing the total number of wellness stores chainwide to 1,325. The company also acquired 1 store and closed 7 stores, resulting in a total store count of 4,581 at the end of the first quarter.

    Rite Aid Confirms Fiscal 2015 Guidance

    Rite Aid has confirmed its fiscal 2015 guidance, which was updated on June 5, 2014. Sales are expected to be between $26.0 billion and $26.5 billion and same store sales to range from an increase of 2.50 percent to an increase of 4.50 percent over fiscal 2014. Adjusted EBITDA (which is reconciled to net income on the attached table) guidance is expected to be between $1.275 billion and $1.350 billion and net income is expected to be between $298.0 million and $408.0 million or income per diluted share of $0.30 to $0.40. Capital expenditures are expected to be approximately $525 million.

    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 12 p.m. Eastern Time today. A playback of the call will also be available by telephone beginning at 12 p.m. Eastern Time today until 11:59 p.m. Eastern Time on June 21, 2014. The playback number is 1-855-859-2056 from within the U.S. and Canada or 1-404-537-3406 from outside the U.S. and Canada with the eight-digit reservation number 55899846.

    Rite Aid is one of the nation’s leading drugstore chains with 4,581 stores in 31 states and the District of Columbia. Information about Rite Aid, including corporate background and press releases, is available through Rite Aid’s website at www.riteaid.com.

    Statements, including guidance, in this release that are not historical are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” and “will” and variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, our high level of indebtedness and our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our debt agreements, general economic, market and competitive conditions, our ability to improve the operating performance of our stores in accordance with our long term strategy, the impact of private and public third-party payers continued reduction in prescription drug reimbursements and efforts to encourage mail order, our ability to manage expenses and our investments in working capital, outcomes of legal and regulatory matters and changes in legislation or regulations, including healthcare reform. These and other risks, assumptions and uncertainties are described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K and in other documents that we file or furnish with the Securities and Exchange Commission, which you are encouraged to read. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Rite Aid expressly disclaims any current intention to update publicly any forward-looking statement after the distribution of this release, whether as a result of new information, future events, changes in assumptions or otherwise.

    See the attached table for a reconciliation of a non-GAAP financial measure, Adjusted EBITDA to net income, the most comparable GAAP financial measure. We define Adjusted EBITDA as net income excluding the impact of income taxes (and any corresponding adjustments to tax indemnification asset), interest expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, inventory write-downs related to store closings, debt retirements and other items (including stock-based compensation expense, sale of assets and investments and revenue deferrals related to our customer loyalty program).

       

    RITE AID CORPORATION AND SUBSIDIARIES

     
    CONSOLIDATED BALANCE SHEETS
    (Dollars in thousands)
    (unaudited)
     
    May 31, 2014March 1, 2014
    ASSETS
    Current assets:
    Cash and cash equivalents $ 166,003 $ 146,406
    Accounts receivable, net 910,624 949,062
    Inventories, net of LIFO reserve of $1,020,126 and $1,018,581 2,933,316 2,993,948
    Prepaid expenses and other current assets   188,593     195,709  
    Total current assets 4,198,536 4,285,125
    Property, plant and equipment, net 1,974,204 1,957,329
    Goodwill 83,971 -
    Other intangibles, net 420,507 431,227
    Other assets   269,299     271,190  
    Total assets $ 6,946,517   $ 6,944,871  
     
    LIABILITIES AND STOCKHOLDERS' DEFICIT
    Current liabilities:
    Current maturities of long-term debt and lease financing obligations $ 112,818 $ 49,174
    Accounts payable 1,364,271 1,292,419
    Accrued salaries, wages and other current liabilities   1,078,442     1,165,859  
    Total current liabilities 2,555,531 2,507,452
    Long-term debt, less current maturities 5,519,580 5,632,798
    Lease financing obligations, less current maturities 71,988 75,171
    Other noncurrent liabilities   845,772     843,152  
    Total liabilities 8,992,871 9,058,573
     
    Commitments and contingencies - -
    Stockholders' deficit:
    Common stock 978,038 971,331
    Additional paid-in capital 4,486,685 4,468,149
    Accumulated deficit (7,474,402 ) (7,515,848 )
    Accumulated other comprehensive loss   (36,675 )   (37,334 )
    Total stockholders' deficit   (2,046,354 )   (2,113,702 )
    Total liabilities and stockholders' deficit $ 6,946,517   $ 6,944,871  
     
     
    RITE AID CORPORATION AND SUBSIDIARIES
       
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (Dollars in thousands, except per share amounts)
    (unaudited)
     
     
    Thirteen weeks ended Thirteen weeks ended
    May 31, 2014June 1, 2013
    Revenues $ 6,465,531 $ 6,293,057
    Costs and expenses:
    Cost of goods sold 4,662,552 4,472,066
    Selling, general and administrative expenses 1,644,354 1,609,261
    Lease termination and impairment charges 4,848 10,972
    Interest expense 100,820 113,064
    Gain on sale of assets, net   (370 )   (5,180 )
     
      6,412,204     6,200,183  
     
    Income before income taxes 53,327 92,874
    Income tax expense   11,881     3,212  
    Net income $ 41,446   $ 89,662  
     
    Basic and diluted earnings per share:
     
    Numerator for earnings per share:
    Net income $ 41,446 $ 89,662
    Accretion of redeemable preferred stock - (25 )
    Cumulative preferred stock dividends   -     (2,732 )
    Income attributable to common stockholders - basic 41,446 86,905
    Add back - Interest on convertible notes - 1,364
    Add back - Cumulative preferred stock dividends   -     2,732  
    Income attributable to common stockholders - diluted $ 41,446   $ 91,001  
     
     
     
    Denominator:
    Basic weighted average shares 963,332 893,871
    Outstanding options and restricted shares, net 33,222 38,812
    Convertible preferred stock - 33,605
    Convertible notes   -     24,800  
     
    Diluted weighted average shares   996,554     991,088  
     
    Basic income per share $ 0.04 $ 0.10
    Diluted income per share $ 0.04 $ 0.09
     
     
    RITE AID CORPORATION AND SUBSIDIARIES
       
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (In thousands)
    (unaudited)
     
     
    Thirteen weeks ended Thirteen weeks ended
    May 31, 2014June 1, 2013
    Net income $ 41,446 $ 89,662
    Other comprehensive income:
    Defined benefit pension plans:
    Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost   659   1,263
    Total other comprehensive income   659   1,263
    Comprehensive income $ 42,105 $ 90,925
     
     
    RITE AID CORPORATION AND SUBSIDIARIES
       
    SUPPLEMENTAL OPERATING AND CASH FLOW INFORMATION
    (Dollars in thousands, except per share amounts)
    (unaudited)
     
     
    Thirteen weeks ended Thirteen weeks ended
    May 31, 2014June 1, 2013
     
    SUPPLEMENTAL OPERATING INFORMATION
     
    Revenues $ 6,465,531 $ 6,293,057
    Cost of goods sold   4,662,552   4,472,066
    Gross profit 1,802,979 1,820,991
    LIFO charge   1,545   12,000
    FIFO gross profit 1,804,524 1,832,991
     
    Gross profit as a percentage of revenues 27.89% 28.94%
    LIFO charge as a percentage of revenues 0.02% 0.19%
    FIFO gross profit as a percentage of revenues 27.91% 29.13%
     
    Selling, general and administrative expenses 1,644,354 1,609,261
    Selling, general and administrative expenses as a percentage of revenues 25.43% 25.57%
     
    Cash interest expense 96,435 108,548
    Non-cash interest expense   4,385   4,516
    Total interest expense 100,820 113,064
     
     
    Adjusted EBITDA 282,613 344,778
    Adjusted EBITDA as a percentage of revenues 4.37% 5.48%
     
    Net income 41,446 89,662
    Net income as a percentage of revenues 0.64% 1.42%
     
    Total debt 5,704,386 5,911,665
    Invested cash   1,990   1,289
    Total debt net of invested cash 5,702,396 5,910,376
     
     
    SUPPLEMENTAL CASH FLOW INFORMATION
     
    Payments for property, plant and equipment 94,342 80,906
    Intangible assets acquired   19,586   11,786
    Total cash capital expenditures 113,928 92,692
    Equipment financed under capital leases   1,683   5,373
    Gross capital expenditures $ 115,611 $ 98,065
     
     
    RITE AID CORPORATION AND SUBSIDIARIES
    SUPPLEMENTAL INFORMATION
    RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
    (In thousands)
       
     
    Thirteen weeks ended Thirteen weeks ended
    May 31, 2014June 1, 2013
     
     
    Reconciliation of net income to adjusted EBITDA:
    Net income $ 41,446 $ 89,662
    Adjustments:
    Interest expense 100,820 113,064
    Income tax expense 11,881 3,212
    Depreciation and amortization 103,105 101,246
    LIFO charge 1,545 12,000
    Lease termination and impairment charges 4,848 10,972
    Other   18,968   14,622
    Adjusted EBITDA $ 282,613 $ 344,778
    Percent of revenues 4.37% 5.48%
     
    RITE AID CORPORATION AND SUBSIDIARIES
       
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Dollars in thousands)
    (unaudited)
     
     
    Thirteen weeks ended Thirteen weeks ended
    May 31, 2014June 1, 2013
     
    OPERATING ACTIVITIES:
    Net income $ 41,446 $ 89,662
    Adjustments to reconcile to net cash provided by operating activities:
    Depreciation and amortization 103,105 101,246
    Lease termination and impairment charges 4,848 10,972
    LIFO charge 1,545 12,000
    Gain on sale of assets, net (370 ) (5,180 )
    Stock-based compensation expense 4,156 4,240
    Excess tax benefit on stock options (10,522 ) -
    Changes in operating assets and liabilities:
    Accounts receivable 41,347 47,797
    Inventories 59,375 6,935
    Accounts payable 86,324 (15,547 )
    Other assets and liabilities, net   (91,506 )   (67,678 )
    Net cash provided by operating activities 239,748 184,447
    INVESTING ACTIVITIES:
    Payments for property, plant and equipment (94,342 ) (80,906 )
    Intangible assets acquired (19,586 ) (11,786 )
    Acquisition of Health Dialog and RediClinic, net of cash acquired (65,306 ) -
    Proceeds from sale-leaseback transactions - 3,989
    Proceeds from dispositions of assets and investments   1,873     6,610  
    Net cash used in investing activities (177,361 ) (82,093 )
    FINANCING ACTIVITIES:
    Proceeds from issuance of long-term debt 1,152,293 -
    Net payments to revolver (49,000 ) (123,000 )
    Principal payments on long-term debt (1,157,443 ) (4,378 )
    Change in zero balance cash accounts (8,578 ) (867 )
    Net proceeds from the issuance of common stock 10,904 6,744
    Excess tax benefit on stock options 10,522 -
    Deferred financing costs paid   (1,488 )   (1,403 )
    Net cash used in financing activities   (42,790 )   (122,904 )
    Increase (decrease) in cash and cash equivalents 19,597 (20,550 )
    Cash and cash equivalents, beginning of period   146,406     129,452  
    Cash and cash equivalents, end of period $ 166,003   $ 108,902  
     
     
    RITE AID CORPORATION AND SUBSIDIARIES
    SUPPLEMENTAL INFORMATION
    RECONCILIATION OF NET INCOME GUIDANCE TO ADJUSTED EBITDA GUIDANCE
    YEAR ENDING FEBRUARY 28, 2015
    (In thousands, except per share amounts)
       
     
    Guidance Range
    LowHigh
     
    Sales $ 26,000,000 $ 26,500,000
     
    Same store sales 2.50% 4.50%
     
    Gross capital expenditures $ 525,000 $ 525,000
     
    Reconciliation of net income to adjusted EBITDA:
    Net income $ 298,000 $ 408,000
    Adjustments:
    Interest expense 390,000 390,000
    Income tax expense 70,000 60,000
    Depreciation and amortization 411,000 409,000
    LIFO charge 15,000 -
    Store closing and impairment charges 55,000 50,000
    Loss on debt retirement 17,000 17,000
    Other   19,000   16,000
    Adjusted EBITDA $ 1,275,000 $ 1,350,000
     
     
    Diluted income per share $ 0.30 $ 0.40
     





    For Further Information:

    Rite Aid Corporation

    INVESTORS:

    Matt Schroeder, 717-214-8867

    investor@riteaid.com

    or

    MEDIA:

    Susan Henderson, 717-730-7766

    Source: Rite Aid Corporation


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