Rite Aid Posts Higher Earnings, Raises Profit Forecast

Rite Aid Corp. (RAD), the No. 3 U.S. drugstore chain, on Thursday posted better-than-expected quarterly earnings and raised its full-year profit forecast, sending its shares up as much as 7 percent.

But the company also cut its 2004 sales forecast, citing unexpectedly high demand for low-priced generic drugs, which bring in less revenue than brand-name drugs.

Prescriptions have spurred dramatic growth at drugstore chains as the U.S. population ages. But Rite Aid said it also faces industrywide challenges such as higher insurance co-pays, reduced Medicaid reimbursement, illegal imports and increased mail orders.

Rite Aid said net income in the fiscal first quarter ended May 29 was $63.3 million, or 10 cents per share, reversing a loss of $38.8 million, or 8 cents a share, a year ago, when it recorded hefty charges for store closings and debt retirement.

The results were double analysts' average estimate of 5 cents per share, according to Reuters Estimates.

The Camp Hill, Pa.-based company, which operates about 3,400 stores, is recovering from a $1.6 billion accounting scandal in the late 1990s that left it on the verge of bankruptcy and plagued by legal bills of the convicted former executives.

The company credited the improved results to a 27.8 percent jump in adjusted earnings before interest, taxes, depreciation and amortization -- a measure of cash flow known as EBITDA (search) -- as well as the lack of charges compared with the year-earlier period.

"Our focus on improving productivity in our existing stores is working," Rite Aid Chief Executive Mary Sammons said on a conference call.

Revenue increased 4.9 percent to $4.2 billion, while sales at stores open at least a year, a key retail measure known as same-store sales, rose 5.3 percent.

Rite Aid said it now expects full-year net income of $121 million to $167 million, up from its earlier forecast for $112 million to $157 million.

However, the retailer cut its full-year sales forecast to a range of $17.2 billion to $17.4 billion, down from its original estimate of $17.4 billion to $17.6 billion.

It now expects same-store sales to be up 4.5 percent to 5.5 percent for the year, below its earlier expectations for 5.5 percent to 6.5 percent.

The company also cut its capital expenditures target for 2005 to $275 million to $325 million, from a range of $300 million to $350 million. It left its EBITDA forecast unchanged at between $800 million and $850 million.

Rite Aid shares were up 35 cents at $5.34 on the New York Stock Exchange (search).