Wednesday, March 31, 2010

Rite Aid, happy to close the door on a rough 2009 (RAD)

Shares of pharmacy Rite Aid (RAD) are down about 6% this morning, on very weak forward earnings guidance.

They reported a fourth quarter loss of 24cents, but that included various one-times charges, among them a write-down in the valuation of deferred tax assets, likely due to the new healthcare bill.  Stripping out those items, the loss of 14cents per share was better than the street expectation of a 19cent loss.

Commenting on the quarter, CEO Sammons cited lower Medicare reimbursements and a weak cold/flu season:

Results were negatively impacted by lower sales and continued pressure on pharmacy margins resulting from less profit on new generics and a significant reduction in reimbursement rates. An improvement in front end margin and good SG&A cost control were not enough to offset the decline in pharmacy margin.
“It was a difficult quarter with continued weak consumer demand, a weaker cough cold and flu season than last year and continued pressure on pharmacy reimbursement,” said Mary Sammons, Rite Aid chairman and CEO. “But our team did a good job of improving front end margins and holding tight on expenses. Thanks to our working capital initiatives, we moved into the new fiscal year with a strong liquidity position.”
The company's guidance however, is the reason for the shares weak performance today.  The outlook is for a loss of 52cents per share, versus current expectations of a 32cent loss.  The downside to estimates is from a slightly weaker revenue outlook, along with what looks like price investments (cuts) to promote customer loyalty:
Outlook for Fiscal 2011
The company's outlook for fiscal 2011 is based on current trends, a continued weak economy with high unemployment and the impact of the investment Rite Aid is making in its new customer loyalty program.
Rite Aid said it expects sales to be between $25.2 billion and $ 25.6 billion in fiscal 2011 with same store sales expected to range from a decrease of 1.0 percent to an increase of 1.0 percent over fiscal 2010.
Adjusted EBITDA (which is reconciled to net loss on the attached table) is expected to be between $875 million and $975 million.
Net loss for fiscal 2011 is expected to be between $355 million and $570 million or a loss per diluted share of $0.41 to $0.65. Capital expenditures are expected to be approximately $250 million.
Not a fun time for this company, and the coming year promises to be a bad way.
Copyright 2010 AlphaNinja

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