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Large writedown almost doubles Rite Aid 4Q loss

After Rite Aid Corp.'s loss doubled in the the fiscal fourth quarter, the drugstore operator is planning to shut down as many as 117 stores over the next year as it tries to cut costs.
/ Source: The Associated Press

After Rite Aid Corp.'s loss doubled in the the fiscal fourth quarter, the drugstore operator is planning to shut down as many as 117 stores over the next year as it tries to cut costs.

The Camp Hill, Pa., company said the closings will be scattered around the country, targeting stores with weak sales and those that are close to another Rite Aid. Saddled with debt and acquired stores that are not living up to expectations, Rite Aid is working to cut inventory and expenses.

Rite Aid said its fourth-quarter results were hurt by the recession, along with a fairly mild cough, cough and flu season and the introduction of new low-cost generic drugs.

About 70 of the stores slated for closure used to be part of the Brooks Eckerd chain. Rite Aid bought 1,850 of those stores in June 2007 for $2.36 billion, but they have not done as well as Rite Aid's older stores, a trend continued in March.

Rite Aid had 4,901 stores in 31 states at the end of February, and the moves will leave it with about 2,000 stores less than rivals CVS Caremark Corp. and Walgreen Co. The retailer plans 20 store openings and 55 relocations in fiscal 2010, which ends next Feb. 28.

Rite Aid closed 200 stores in fiscal 2008, cutting its store count by 158.

The company plans to eliminate 67 stores by the end of May, including 12 stores that were recently sold to Walgreen. Rite Aid also said it will close a distribution center in Newnan, Ga. It has announced two distribution center closings this year, cutting about 360 jobs at an estimated savings of $4.9 million a year.

Rite Aid acquired the distribution centers as part of the Brooks Eckerd purchase.

In the fiscal fourth quarter, Rite Aid reported a loss attributable to common stockholders of $2.3 billion, or $2.67 per share. It lost $960.4 million, or $1.20 per share, a year ago. Because of the plunging value of Rite Aid stock, the company wrote down the value of its assets by $1.81 billion. About $1.2 billion of that expense came from writing down the value of the Brooks Eckerd stores.

Chairman and Chief Executive Mary Sammons said the $1.2 billion write-down of the former Brooks Eckerd stores "is not a true reflection of the long-term benefit we expect to see from our acquired stores." On the company conference call, she added that the newer stores have not met Rite Aid's original expectations, but pharmacy results are improving.

Rite Aid shares have been trading under $1 since September and closed at 39 cents on Wednesday. The company plans to boost its share price later this year with a reverse stock split.

Rite Aid shares rose 6 cents, or 15.4 percent, to close at 45 cents Thursday. They set an all-time low of 20 cents last month.

Excluding the write-downs and a number of other one-time costs, Rite Aid lost $116.9 million, or 14 cents per share. Revenue fell 2 percent, to $6.71 billion, in part because of the reduced store count.

Thomson Reuters says analysts expected a smaller loss of 11 cents per share and $6.71 billion in revenue.

Rite Aid's fiscal 2010 forecast was mostly below analyst estimates. The company said it expects to lose $210 million to $435 million for the year, or between 26 cents and 53 cents per share. It called for $26.3 billion to $26.7 billion in revenue, and said same-store sales would rise 0.5 to 2.5 percent.

Analysts expected a loss of 36 cents per share on $26.68 billion in revenue.

In fiscal 2009, Rite Aid reported a loss of $2.94 billion, or $3.49 per share, compared with $1.11 billion, or $1.54 per share in fiscal 2008. Its revenue rose 8 percent, to $26.29 billion from $24.33 billion.

In a note to clients, Standard & Poor's analyst Joseph Agnese said Rite Aid's poor financial condition creates a lot of risk, although sales are slowly improving and the company is making progress at reducing costs.