Rite Aid ends fiscal Q3 with $1.1 billion liquidity, improved debt level and leverage ratio

By Paul Deckelman

New York, Dec. 19 - Rite Aid Corp. closed out its fiscal 2014 third quarter with $1.1 billion of liquidity, the company said Thursday.

Its balance sheet also showed lower total debt and net debt levels as well as an improved leverage ratio of net debt as a multiple of trailing 12-month invested EBITDA.

Chief financial officer Frank G. Vitrano, who also serves as the senior executive vice president and chief administrative officer for the Camp Hill, Pa.-based Number-Three U.S. drugstore chain, said that Rite Aid - a money-losing company for many years - has been in touch with the major ratings agencies, updating them on its continued financial progress.

"The third-quarter results represent solid progress on our turnaround," Vitrano told analysts on the conference call following the release of results for the fiscal quarter ended Nov. 30.

At the end of the quarter, Rite Aid had $1.1 billion of liquidity and $590 million of borrowings outstanding under its $1.8 billion senior secured credit facility, with another $88 million of outstanding letters of credit.

The company's balance sheet showed $183.2 million of cash and equivalents, up from $129.4 million during the year-ago quarter.

The company had $5.83 billion of long-term debt, less current maturities, versus $5.9 billion. Current maturities of long-term debt and lease obligations stood at $747.7 million, up from $37.3 million. Vitrano said that total debt, net of invested cash, was lower by $44.1 million from last year's third quarter.

He said its leverage ratio for the latest quarter had improved to 4.5 times from 5.6 times when compared to the third quarter of fiscal 2013.

During the quarter, the company repurchased in full $21 million of 7% Rite Aid Lease-Management Co. preferred stock, which had been classified as part of its "other non-current liabilities."

Vitrano further said that Rite Aid expects to be free-cash-flow positive in fiscal 2014, with a range of $250 million to $300 million.

Working on the ratings

During the question-and-answer segment of the conference call following the formal presentations by Vitrano, company president and chief operating officer Kenneth A. Martindale and Rite Aid's chairman and chief executive, John T. Standley, an analyst asked about company efforts to get the ratings agencies to upgrade ratings to reflect its improved capital structure. For instance, he noted that Moody's Investors Service still has relatively low Caa2 ratings on some parts of Rite Aid's capital structure.

Vitrano answered that "we continue to talk with the ratings agencies, updating them on our progress. There has been movement, both on S&P and Moody's. Obviously, we would like to see it continued."

He noted that what the agencies are looking for is "continued sustainability on our progress in growing EBITDA and becoming less leveraged. Those are the two metrics that they're looking at."

An analyst asked whether the company has any plans for the roughly $250 million to $300 million of free cash flow that it expects to generate, with Standley answering that the company plans to issue guidance on its capital spending plans for next year, including its ongoing campaign to re-do its nearly 4,600 current stores in its new and more profitable "wellness store" format, which is in place at about 1,100 of its outlets.

"We're looking very carefully at the renovation program. We've had some really good success there, and we're excited about the progress that we're making, so that's certainly an area that we'll continue to look at for investment," Standley added.

He mentioned other potential investments, including some in the company's real estate pipeline and other "opportunities for us to make our company more efficient and drive our business."

When the analyst asked whether this meant that the company was more focused on the growth side than using cash for debt paydown, Vitrano quipped "that would be me," and said that while "clearly we've been stepping up our capex program here and next year, we'll step it up again." He added that he is "not sure that we will spend all of our available cash on capex, so there clearly will still be a portion that we will use to pay down the debt."

For the quarter, Rite Aid reported revenues of $6.4 billion, up from $6.2 billion in the year-ago period. Net earnings rose to $71.5 million, or 4 cents per diluted share, from $61.9 million, or 7 cents per share.

Adjusted EBITDA was $282.3 million, versus $295.3 million a year ago.

© 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.