Rite Aid 2Q loss narrows, 2012 forecast improves

TOM MURPHY - AP Business Writer
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In this Sept. 20, 2011 photo, a customer steps out of her car at a Rite Aid pharmacy in Rockland, Mass. Drugstore chain Rite Aid Corp. says its fiscal second-quarter loss narrowed as customers preparing for Hurricane Irene helped boost sales last month. (AP Photo/Stephan Savoia)

Rite Aid Corp. said Thursday its fiscal second-quarter loss narrowed as a customer rewards program improved sales and Hurricane Irene brought the drugstore operator more business at the end of the quarter.

The Camp Hill, Pa., company also trimmed its projected loss for fiscal 2012.

Rite Aid lost $94.7 million, or 11 cents per share, after paying preferred dividends in the quarter that ended Aug. 27. A year ago it lost $199.3 million, or 23 cents per share, when it absorbed a $44-million charge tied to refinancing. Revenue climbed nearly 2 percent to $6.27 billion.

Analysts surveyed by FactSet expected, on average, a loss of 18 cents per share.

Rite Aid operates about 4,700 stores and trails only CVS Caremark Corp. and Walgreen Co. in size. Unlike those competitors, Rite Aid has a string of quarterly losses dating back to 2007.

The chain has closed hundreds of stores in recent years and refinanced debt to improve its financial position. Sales at its remaining stores are improving.

The company said earlier this month that sales at stores open at least a year rose 2.2 percent in the quarter, as non-pharmacy sales rose 2.5 percent while pharmacy revenue was up 2 percent. This is a key indicator of a retailer's long-term health because it excludes stores that recently opened or closed. Rite Aid broke a long streak of declines in that figure last winter.

CEO John Standley told analysts Thursday morning that the company's Wellness Plus customer rewards program was a key factor behind the growth. The program was launched in April 2010, and Rite Aid said it now has more than 44 million members, up from nearly 40 million reported for the first fiscal quarter.

They accounted for 66 percent of the company's prescriptions and 69 percent of its non-pharmacy sales during the quarter.

Rite Aid also saw 2.5 percent sales growth from stores open at least a year in August, when customers stocked up on non-pharmacy items like food and batteries in preparation for Hurricane Irene. But the company said Thursday it gave back much of that storm-related gain in September, when customers stayed away after the hurricane swept up the East Coast.

Rite Aid also said Thursday it was putting a new Save-A-Lot store concept on hold. The company announced the idea, which adds a grocery section to drugstores, last September and said it would test it at 10 stores in and around Greenville, S.C.

Standley said Thursday the profit margins of those stores have not been strong enough to take advantage of the sales gains they create, and Rite Aid doesn't plan to expand the concept with its partner, the grocery chain Supervalu.

"We still like the grocery concept and think it can work in certain of our stores," he said.

The company also started changing some of its stores to a new wellness format in the fiscal second quarter. These stores have more organic food, natural personal care products, and homeopathic medicines, along with employees who help customers find vitamins and nutritional supplements, and carry tablet computers to look up products for shoppers.

Rite Aid completed 40 wellness stores in the quarter, and Standley said customers have told them they like "the look and feel" of the stores.

For fiscal 2012, Rite Aid now expects a loss of between $345 million and $495 million, or 40 cents to 56 cents per share, and sales that will range between $25.8 billion and $26.1 billion. That compares to its previous forecast for a loss of between $370 million to $560 million, or 42 to 64 cents per share, and sales ranging from $25.7 billion to $26.1 billion.

Analysts forecast an annual loss of 50 cents per share and $25.6 billion in sales, according to FactSet.

Rite Aid shares fell 5 cents to close at $1.02 while the Dow Jones industrial average slid 3.5 percent. The company's shares have climbed more than 18 percent since closing 2010 at 88 cents.