By Jessica Wohl
CHICAGO (Reuters) - Rite Aid Corp
While the company's ninth consecutive quarterly net loss reported on Thursday was not as steep as analysts had expected, its outlook was for fiscal-year results that could fall well below Wall Street's view.
Rite Aid operates most of its stores on the east and west coasts and trails Walgreen Co
The company has been reducing its debt level, closing some stores, revamping others and renegotiating some leases. But the 2007 acquisition of the Brooks and Eckerd chains added hundreds of stores that have not performed as well as Rite Aid's own locations.
"They're in a bit of strife, especially compared to companies like Walgreens," said Toon van Beeck, senior industry analyst at IBISWorld Inc.
After keeping a sharp eye on cost reduction, Rite Aid executives conceded on a call with analysts on Thursday that they need to switch gears a little bit and work on improving sales at its more than 4,800 stores.
Shares of Rite Aid were down 22 cents to $1.73 in early afternoon trade. A week ago, the shares hit a 52-week high of $2.35.
Shares of Walgreen, which reports its quarterly results next week, fell 2 percent. CVS shares also fell 2 percent.
MORE THAN COST CUTS
The company's net loss narrowed to $116 million, or 14 cents per share, in the second quarter that ended August 29 from $222 million, or 27 cents per share, a year earlier. Analysts on average expected a loss of 16 cents per share, according to Reuters Estimates.
Second-quarter revenue fell 2.7 percent to $6.3 billion, due in part to store closings. Sales at stores open at least a year fell 1.1 percent, with such sales up 0.8 percent in the pharmacy section and down 4.9 percent for general merchandise.
Drugstores such as Rite Aid get about two-thirds of their sales from prescriptions, which have held up relatively well even though low-cost options led by Wal-Mart Stores Inc's
Rite Aid said consumers "seem real value driven," buying general merchandise items on sale, and shopping around paydays has increased.
"It doesn't sound too different than many other retailers," said Doug Conn, managing director and retail credit specialist at Hexagon Securities. "They're just seeing less demand and the more price-sensitive consumer in their stores."
The company said it would launch a loyalty program nationwide next year and take other steps to drive sales.
IBISWorld's van Beeck said Rite Aid's "problems with debt and continuing net losses are going to hamper them."
Rite Aid has to renegotiate its accounts receivables program in 2010, a move it should be able to make, Conn said.
The high-yield markets and leveraged loans markets have reopened to high-yield companies that need to refinance as long as they have good operating prospects, he said.
TRACKING FLU SEASON
Drugstores could benefit if the upcoming cold and flu season turns out to be a big one, leading patients into stores for medications, tissues and cough drops.
Rite Aid, which along with its rivals is already offering flu shots, said anything beyond a "normal" flu season could bring it toward the higher end of its sales forecast.
Rite Aid has cut back on its stock of winter holiday goods, anticipating weaker demand. One bright spot in general merchandise is that the company's private label goods gained a larger share of sales. While those items sell for less, they are typically more profitable.
Rite Aid expects fiscal-year sales of $25.7 billion to $26.2 billion, down from its earlier forecast of $26.3 billion to $26.7 billion and last year's $26.29 billion. It now expects same-store sales in a range of down 1 percent to up 1 percent, compared with a prior view of up 0.5 percent to 2.5 percent.
Rite Aid also expects to post a loss of 48 cents to 74 cents a share this year. In June, it called for a loss of 33 cents to 59 cents, and analysts have forecast a 48-cent loss.
(Reporting by Jessica Wohl, editing by Maureen Bavdek and Tim Dobbyn)