Rite Aid lowers 2008 guidance, citing economy, slow cough/cold sales

CAMP HILL, Pa. Rite Aid on Thursday lowered its fiscal 2008 guidance for sales, net loss and adjusted EBITDA, citing a soft economy and slow start to the cough-cold season as reasons behind the adjustment.

As of mid-afternoon, the news dropped Rite Aid’s stock by some 27 percent to less than $3 per share.

“We are lowering our fiscal 2008 guidance because the cough, cold and flu season continues to be weaker than last year, and we are seeing slower holiday sales than expected so far,” stated Mary Sammons, Rite Aid president and chief executive officer. “Our team is focused on our critical priorities of increasing both front-end and pharmacy sales, containing costs, investing in the store base through our new and relocated store program and improving customer satisfaction.”

Rite Aid now expects sales to fall between $24.3 billion and $24.6 billion, with same-store sales improving 1 percent to 2 percent, as compared to previous guidance of $24.5 billion and $25.1 billion with same-store sales improving 1.3 percent to 3.3 percent.

Net loss for fiscal 2008, including nine months of acquisition-related cost savings of approximately $200 million, is expected to drop between $161 million and $192 million as compared to previous guidance of net loss between $78 million and $161 million.

Rite Aid reported revenues of $6.5 billion for the 13 weeks ended Dec. 1, representing a 51 percent increase.

Net loss for the quarter was $84.8 million compared to last year’s third quarter net income of $1.1 million.

Same-store sales, which do not include the Brooks- or Eckerd-acquired stores, increased 0.7 percent during the third quarter as compared to the year-ago like period, consisting of a 1.2 percent pharmacy same-store sales increase and a 0.4 percent decrease in front-end same-store sales. The number of prescriptions filled in same stores increased 0.2 percent.

Adjusted EBITDA was $232.3 million or 3.6 percent of revenues for the third quarter compared to $160.8 million or 3.7 percent of revenues for last year’s third quarter.

Even with the negative news, Goldman Sachs analyst John Heinbockel, a critic of Rite Aid’s ability to successfully convert the Brooks/Eckerd acquisiton, raised his analysis of Rite Aid’s stock from Sell to Neutral, noting that Rite Aid has been trading recently at less than what Heinbockel expects in the near future. “It is quite possible for the shares to trade lower in the near-term (as they are today),” Heinbockel wrote in a research note published Thursday, “given how badly investor confidence has been dented.”