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Rite Aid posts fiscal 2008 results

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CAMP HILL, Pa. Rite Aid Thursday morning reported a net loss of $1.1 billion for its fiscal 2008 ending March 1, which includes three quarters of results from its acquired Brooks/Eckerd operations—the deal was closed at the top of Rite Aid’s second quarter last year.

Over fiscal 2009, which ends Feb. 28, 2009, Rite Aid said it expects sales to be between $26.7 billion and $27.2 billion with same-store sales (which at that time will include nine months of sales from the Brooks-Eckerd stores) improving 2 percent to 4 percent over fiscal 2008. Adjusted EBITDA is expected to fall between $1 billion and $1.1 billion. Net loss for fiscal 2009 is expected to be between $260 million and $375 million or a loss per diluted share of $.34 to $.48. Capital expenditures, excluding proceeds from sale and leaseback transactions, are expected to be approximately $600 million. Proceeds from sale and leaseback transaction are expected to be approximately $150 million.

 “This was a defining year for Rite Aid because we completed an acquisition that gives us significantly increased scale and greater strength in our key existing markets to better compete in the very competitive drug store sector,” stated Mary Sammons, chairman, president and chief executive officer of Rite Aid. “And although we faced a challenging economic environment in the latter part of the year, we continued to build Rite Aid’s core business by increasing same-store sales, filling more prescriptions, growing gross margin rate and controlling expenses. Without the impact of the tax valuation allowance, which also eliminated a tax benefit we expected for the fourth quarter, our net loss would have been $0.06 per diluted share for the fourth quarter and $0.29 per diluted share for the year.”

“We also improved customer satisfaction, opened 120 stores as part of our new and relocated store program and added to the depth of our management team. Although our results were not as strong as we had planned at the start of fiscal 2008, we made good progress nine months into our 16-month Brooks Eckerd integration plan and continued to set the stage for Rite Aid’s future long-term growth.”

As many as 75 percent of the Brooks/Eckerd stores have switched over to Rite Aid’s NexGen pharmacy system, or some 1,300 stores, and is expected to be completed by May, Sammons told analysts during a Thursday morning conference call. To date, 450 Brooks/Eckerd-to-Rite-Aid remodels have been completed—all stores are expected to be converted by October.

In addition, Rite Aid plans to add between 350 and 400 GNC stores-within-a-store to its base this year, which would bring the total number of stores with a GNC-branded supplement department to more than 1,850. Comparable sales in the GNC departments are some three times greater than a typical supplement department, Sammons said.

Brooks/Eckerd stores have benefited significantly from the new Rite Aid product mix, Sammons said, with private lable penetration improving some 200 basis points since June.

Rite Aid recorded $24.3 billion in overall revenues for the year, an increase of 39.8 percent. Same-store sales for the 52-week year increased 1.3 percent (not including Brooks/Eckerd operations), consisting of a 1.7 percent pharmacy same-store sales increase and a 0.7 percent increase in front-end same-store sales. The number of prescriptions filled in same stores increased 0.5 percent. Prescription sales accounted for 66.7 percent of total sales, and third party prescription sales were 95.9 percent of pharmacy sales.

While Rite Aid, along with many retailers, experienced a soft December in its soft quarter, sales picked up significantly across January and February, Sammons told analysts. Revenues for the 13-week fourth quarter were $6.8 billion up 50.5 percent. Same-store sales for the 13-week fourth quarter across the Rite Aid core stores increased 1.3 percent over the prior year 13-week period, consisting of a 1.4 percent pharmacy same-store sales increase and a 1 percent increase in front-end same-store sales.

Net loss for the fourth quarter was $952.2 million or $1.20 per diluted share compared to last year’s fourth quarter net income of $15.1 million or $.01 per diluted share. Included in this quarter’s loss is a previously announced non-cash income tax charge from the recording of a valuation allowance against deferred tax assets that accounted for $894.9 million or $1.12 per diluted share and resulted in the loss of an expected non-cash tax benefit for this year’s fourth quarter. Also contributing to the change were increases in expenses resulting from the Brooks/Eckerd acquisition including an increase in depreciation and amortization expense of $65.5 million, additional interest expense of $57.8 million and integration expense of $37.7 million.

“During the quarter we increased pharmacy sales, filled more prescriptions, improved front-end sales and grew gross margin rates, and we did it as worries about a recession increased and retail sales softened in general,” Sammons stated. “Our team also continued to do a good job of controlling expenses without negatively impacting the shopping experience in our stores. We also made good progress on the Brooks/Eckerd integration with the acquired stores showing improving sales and margin trends.”

In the fourth quarter, the company opened 18 stores, relocated 29 stores, remodeled 14 stores and closed or sold 48 stores which were primarily related to combining acquired stores in close proximity to existing stores and the previously announced exit from the Las Vegas market.

For the year, the company opened 47 new stores, relocated 65 stores, remodeled 145 stores, acquired 1,854 Brooks/Eckerd stores, acquired eight other stores and sold or closed 183 stores. The sold or closed stores included the 25 stores required to be sold for the Brooks/Eckerd acquisition, the combination of 92 stores related to the Brooks/Eckerd acquisition that were in close proximity to one another and 34 stores from exiting Nevada markets. Stores in operation at the end of the year totaled 5,059.

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