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Rite Aid warns of losses
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October 11, 1999: 6:45 p.m. ET
Will restate results, looks to sell assets as it struggles with debt load
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NEW YORK (CNNfn) - Rite Aid Corp. warned Monday it would report a hefty loss in its recently ended second quarter, falling short of Wall Street's estimates as the drug retailer struggles to find the prescription for financial health.
Camp Hill, Penn.-based Rite Aid (RAD) also expects to restate earlier results due to what it said would be noncash charges related to the accounting practices related to some stores it closed.
Rite Aid, the nation's third-largest drug vendor, reported a "preliminary" net loss of $67.9 million, or 26 cents per share, in the second quarter ended Aug. 28, 1999.
That includes $34 million in pre-tax charges connected with the closing or relocation of 106 stores in the quarter. The company had about three times as many items in the quarter that Martin Grass, its chairman and chief executive, referred to as "one-time" costs, but most of them were not actual charges. There was also $49 million in increased interest costs related to the $1.5 billion purchase in January of PCS Health Systems from Eli Lilly & Co. (LLY).
Analysts had expected Rite Aid to post net earnings of 24 cents per share, according to a survey conducted by research firm First Call/Thomson Financial. In the year-ago quarter the company reported 33 cents a share in net income, fully diluted.
The need to get out from under its debt has company officials looking to asset sales. It is even considering offers for PCS, despite praise from company officials what a good fit it is for Rite Aid and the fact it is a leader in managing prescription benefit plans for companies and managed-care plans. Rite Aid has received unsolicited offers for PCS for more than it paid for it, said Grass.
"It's possible we could sell it outright. We are open to any and all offers and we've made it clear," said Grass. "You have to look at your assets every day, see what they're worth."
The company is also looking to sell hundreds of its stores on the West Coast and might exit that market altogether, depending upon interest. The company announced last month that it was selling 38 stores in California to Longs Drug Stores (LDG) for $138 million.
It is also in negotiations with lenders and expects to announce a restructuring of credit facilities through next April within the next week to nine days. It then plans to use asset sales to pay down $1.3 billion during that time. That is the revolving debt used to buy PCS.
During a conference call Grass would not comment on an investor's question whether the company had received any offers for an outright purchase of Rite Aid.
"Obviously the board of management will do whatever is necessary to enhance shareholder value," he said.
Shares of Rite Aid rose 5/16 to 12-13/16 on the New York Stock Exchange Monday, but fell to 10 in trading after the closing bell. The stock has been falling steadily throughout the year, from a high of 51-1/8 earlier this year.
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Rite Aid
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