Rite Aid looks to increase liquidity, reduce debt through operational improvements

By Stephanie N. Rotondo

Portland, Ore., April 2 - Rite Aid Corp. plans to continue looking for "opportunities" to cut costs and reduce debt in fiscal 2010, management said during the company's conference call held Thursday to discuss fourth-quarter financial results.

"As we continue to look for every opportunity to improve efficiency in our company, it is important to note that many of the initiatives that we have in place are not just to help us mange through the current economic storm," said Mary Sammons, chief executive officer. "We are also changing the way we operate for the long term so that when customer spending picks up again we will see the impact on the bottom line."

Beginning in September 2008, Rite Aid began looking at ways to increase operational efficiency. That resulted in some store closures, as well as workforce and inventory reduction. The company said it plans to continue to reduce operational expenses in an effort to increase liquidity and reduce debt.

One such example is the company's closure of its Newnan, Ga., distribution center, which was also announced on Thursday. John Stanley, Rite Aid's president and chief operating officer, said that additional distribution center closures could be possible in the coming months, especially at what he called "satellite" centers.

Along with certain closures - including the closure of 158 stores in the last year - Rite Aid has also taken measures to reduce its inventory, both at its distribution centers and in so-called "back rooms." For the fourth quarter, FIFO inventory fell by $243.6 million from the year before and by $379.3 million from the third quarter.

Increasing liquidity

The cost savings from the closures and inventory reductions have led the company to see an increase in available borrowings under its senior secured credit facility. At the end of the third quarter, $724 million was available, and as of Thursday, $762 million was available.

"Given our $240 million inventory reduction target for fiscal 2010 and its resulting impact on our borrowing base calculation, it's possible our maximum availability will be impacted," said Frank Vitrano, chief financial officer. "Our liquidity position remains a top priority for the company, and we plan in fiscal 2010 to reduce debt."

Also, Rite Aid completed a refinancing of its $225 million second-lien accounts receivables securitization facility, Vitrano said.

The company is also looking ahead to its credit facility that matures in September 2010 and has already begun talks with lenders regarding a renewal.

"Given current credit market conditions, it is premature to predict the final outcome, but we feel confident that through our various initiatives to reduce debt by improving working capital and our performance, coupled with a term loan or high-yield offering, we will be able to fully satisfy our future liquidity requirements, albeit at a higher rate, which is not factored into our guidance," Vitrano stated.

Furthermore, Rite Aid said it was erring on the conservative side and aimed to cut capital expenses by $210 million.

Overall, the operational improvements and inventory reductions will serve to make the company cash flow positive in fiscal 2010, Vitrano added.

"Ultimately, I think we can create a lot of value for all of our stakeholders, but we have a lot of work to do," said Stanley.

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

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.