Rite Aid ends quarter with liquidity to withstand weak economy, invest in growth, CEO says

By Jennifer Lanning Drey

Portland, Ore., June 23 - Rite Aid Corp. ended the first quarter of fiscal 2011 with $1.2 billion of liquidity, an amount that will allow the company to survive the weak economy and invest in growth initiatives, chief executive officer Mary Sammons said Wednesday during the company's quarterly earnings conference call.

"Our liquidity is the strongest it has been in years. This enables us to continue to withstand an economy that doesn't appear to be headed for a solid recovery anytime soon," Sammons said.

Rite Aid's quarter-end liquidity position included just over $1 billion of borrowing capacity under its credit facility and more than $200 million of invested cash.

The company had no revolver borrowings outstanding under its $1.18 billion senior secured credit facility at quarter-end, Frank Vitrano, Rite Aid's chief financial officer, reported during the call.

Total debt net of invested cash at May 29 was reduced by $143 million, as compared to a year earlier, Vitrano said.

The CFO also noted during the call that Rite Aid's bank credit facility has a fixed-charge coverage ratio test that increased to 1.10 from 1.05 beginning in the first quarter of fiscal 2011.

Rite Aid was in compliance with the fixed-charge coverage ratio at the end of the fiscal first quarter.

However, based on its range of guidance for the full year, the company may not meet the requirement in the third and fourth fiscal quarters, he said.

The impact of not meeting the ratio would be a limit on the company's ability to access the last $150 million under the facility.

Based on its liquidity position, Rite Aid does not believe any such restrictions would impact its business, Vitrano said.

Investing in growth

The company also continues to invest in growth, Sammons said. During the quarter ended May 29, Rite Aid nationally launched its new wellness and customer loyalty program, began immunization training and introduced the first products in a revamped private brand program into the stories.

For the period, Rite Aid reported revenues of $6.4 billion and adjusted EBITDA of $249.8 million. The figures compared with revenues of $6.5 billion and adjusted EBITDA of $249.2 million in the first quarter of fiscal 2010.

Same-store sales for the first quarter of fiscal 2011 decreased by 1% as compared to the prior-year period.

"The first quarter saw solid progress with our various operating initiatives and continued strong expense control execution, despite sales challenges and margin pressure," Vitrano said.

Rite Aid also confirmed its fiscal 2011 guidance on Wednesday. The company expects sales of between $25.2 billion and $25.6 billion with same-store sales ranging from a decrease of 1% to an increase of 1% over fiscal 2010.

The company expects adjusted EBITDA to be between $875 million and $975 million for full-year fiscal 2011.

Rite Aid expects to be free cash flow positive for the year, Vitrano said.

Rite Aid is a Camp Hill, Pa.-based drugstore chain.

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