Rite Aid expects positive free cash flow in fiscal 2011, to trim debt

By Jennifer Lanning Drey

Portland, Ore., March 31 - Rite Aid Corp. projects it will be free cash flow positive in fiscal 2011 and plans to use its free cash flow to pay down debt, Frank Vitrano, chief financial officer of Rite Aid, said Wednesday during the company's year-end earnings call for fiscal 2010.

The company was free cash flow positive for fiscal 2010 and reduced total debt including accounts receivable securitization by $189 million during the year, he said.

"We delivered free cash flow for the first time in three years and started to reduce debt," Mary Sammons, chief executive officer of Rite Aid, said during the call.

The company ended fiscal 2010 with $945 million of total liquidity at Feb. 27 and has since improved its liquidity to $1.2 billion, Vitrano said.

At quarter-end, Rite Aid had $80 million in outstanding revolver borrowings under its $1.75 billion senior secured credit facility.

In the first quarter of fiscal 2011, the fixed charge coverage ratio test under the credit facility increases to 1.10 from 1.05. If not met, Rite Aid's ability to access the remaining amount under the facility would be impacted.

Given the company's range of guidance for the year, access could be restricted during the year, Vitrano said.

However, based on its liquidity position, the CFO said the restriction would not be likely to impact the business.

During the call, Sammons also said Rite Aid's liquidity position will enable the company to make strategic investments in initiatives for long-term growth, such as the upcoming launch of its customer loyalty program, training additional immunizing pharmacists and investing in a new private-brand architecture to increase higher-margin sales.

Same-store sales hurt revenue

Rite Aid reported revenues of $6.5 billion for the fourth quarter, versus revenues of $6.7 billion in the fourth quarter of fiscal 2009. The company said the 3.6% decline in revenues was primarily a result of store closings and a decline in same-store sales.

Same-store sales were down 2.4% from the prior-year period.

The company expects same-store sales in fiscal 2011 in a range from a decrease of 1% to an increase of 1% over fiscal 2010.

Rite Aid posted fourth-quarter adjusted EBITDA of $205.1 million, compared to adjusted EBITDA of $270.5 million in the prior-year fourth quarter.

Based in Camp Hill, Pa., Rite Aid is a drugstore chain.

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