Rite Aid swings to full-year profit, cuts debt ratio, touts impact of refinancing transactions

By Paul Deckelman

New York, April 11 - Rite Aid Corp. had what its chief executive officer called "a year to remember" in fiscal 2013, when, among other things, it posted its first full-year profit since 2007.

And CEO John T. Standley said Thursday that the Camp Hill, Pa.-based No. 3 U.S. drugstore chain operator "significantly improved our financial health" by, among other things, reducing its net debt level by some $250 million.

Standley, who also serves as the company's chairman and its president, told analysts on the company's conference call following the release of its results for the fiscal 2013 fourth quarter and full-year ended March 2 that "this reduction in debt and our increase in adjusted EBITDA helped us improve our leverage ratio and gain better access to capital markets.

"As a result of these strong results," he continued, Rite Aid "completed a comprehensive refinancing that will lower our annual cash interest expense by approximately $49 million, extend the maturity of substantially all of our debt to 2017 and beyond and provide us with the financial flexibility we need to execute our business plan."

First profit in a long time

The company's chief financial officer, Frank G. Vitrano, said that Rite Aid had posted "record results" in terms of adjusted EBITDA for the quarter of $340.3 million, versus $274.3 million a year earlier, and for the full year of $1.13 billion, versus fiscal 2012's roughly $943 million. It was the ninth consecutive quarter of growth in adjusted EBITDA and the number of prescriptions filled on a same-store basis, a key drugstore industry performance metric.

Rite Aid had net income for the quarter of $123.1 million, or 13 cents per diluted share, versus a year-earlier $161 million net loss, or 18 cents per share of red ink. For the full year, net income was $118.1 million or 12 cents per share - the first such profit since 2007. In contrast, the company had lost $368.5 million, or 43 cents per share, in fiscal 2012, its fifth consecutive yearly loss.

He noted that the improvement was even more remarkable in view of the fact that through a quirk in the calendar, the previous fiscal year and its fourth quarter had an extra week - 14 for the quarter and 53 for the year - in which to generate more sales and earnings.

Vitrano said the results "reflect solid progress in our turnaround and continued benefits from the various initiatives" that Rite Aid has undertaken.

Recent debt moves pay off

The CFO noted that Rite Aid had been busy on the capital-markets front during the quarter, during which it completed a $2.4 billion refinancing of its existing debt, including its tranche 2 and tranche 5 term loans.

The company entered into a new $1.8 billion revolving credit facility due in 2018 and a $1.16 billion tranche 6 term loan due in 2020, as well as a $470 million second-lien term loan tranche due in 2020.

Besides taking out the existing term loan debt, the company used proceeds from the new facility to tender for its $410 million of 9¾% senior secured notes due 2016 and $470 million of its 10 3/8% senior secured notes due 2016. Holders tendered $257.3 million, or 62.8%, of the 9¾% notes and $402 million, or 85.5%, of the 10 3/8% notes by the tender deadline of Feb. 28, with the remainder of both series of notes then being called for redemption on March 25.

The company also repaid $186 million of 6 7/8% senior debentures that were scheduled to mature on Aug. 15 of this year.

At the end of the quarter, the company's total debt load stood at some $5.94 billion - $37.3 million of current debt and $5.9 billion of long-term debt. That was down from its year-earlier total debt figure of $6.22 billion - $79.4 million of current debt and $6.14 billion of long-term debt.

Vitrano said that annual interest expense savings following the recent debt transactions are expected to be $60 million per year, with cash interest savings of $49 million.

As of the end of the quarter, Rite Aid's liquidity totaled $1.03 billion, including $16 million of invested cash. The company had $665 million of outstanding borrowings under its senior credit facility and $115 million of outstanding letters of credit.

With the more than $250 million year-over-year reduction in net debt from the year-ago fourth quarter, Vitrano said that Rite Aid's leverage ratio of debt versus trailing 12-month adjusted EBITDA had come down by more than one full turn, to 5.3 times at the quarter's end versus 6.6 times a year earlier.

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