Rite Aid loss chops 31% off shares

Shares of Rite Aid Corp., the Camp Hill, Pa., drugstore chain, plunged nearly 32 percent yesterday after it reported a wider loss than analysts had estimated and cut its 2008 forecast for the second time in three months on slowing sales of cold medicine and holiday items.

The net loss was $84.8 million, or 12 cents a share, for the third quarter through Dec. 1 because of costs related to the acquisition of the Brooks and Eckerd chains, the company said yesterday in a statement. Analysts had estimated a loss of 8 cents a share.

Chief executive officer Mary Sammons oversaw the purchase of 1,800 drugstores to compete against Walgreen Co. and CVS/Caremark Corp., resulting in additional expenses of about $200 million even as sales declined. Sales of flu remedies were less than a year earlier, and demand for photo processing and snacks fell during what may be the slowest holiday shopping season since 2002.

"They certainly are not off to a good start," said Matt Kaufler, who helps manage $2.6 billion at Clover Capital Management Inc., of Rochester, N.Y., and is a former Rite Aid shareholder. "The more time it takes, the less valuable this acquisition will have turned out to be."

Third-quarter results included $62.1 million of interest expense related to the Brooks and Eckerd purchase, integration costs of $53.3 million, an expense of $69.7 million for depreciation and amortization, and store closing and impairment costs of $16.7 million for the acquisition.

Eight analysts, on average, predicted a third-quarter loss of 8 cents a share in a survey by Bloomberg. Sales increased 51 percent to $6.5 billion, the company said Dec. 6.

Rite Aid shares plunged $1.30, or 31.71 percent, to close at $2.80 yesterday. The stock lost 25 percent of its value this year before yesterday.

Rite Aid predicts sales for the year of $24.3 billion to $24.6 billion, down from an earlier estimate of $24.5 billion to $25.1 billion. It also forecast a wider loss of 27 to 31 cents a share, compared with an earlier estimate for a loss of 15 to 27 cents.

This year's holiday shopping season may grow at the slowest pace since 2002, according to the National Retail Federation.

The drugstore chain also reduced its forecast for full-year adjusted earnings before interest, taxes, depreciation and amortization to $950 million to $1 billion. Previously, it predicted $1 billion to $1.1 billion.

Sales at the Brooks and Eckerd stores continue to drop, Sammons said in a conference call with analysts.

"They were negative when we got them," Sammons said. "They continue to be negative. The trend actually did worsen during the third quarter. We would expect them to begin improving, and we are seeing that with the activities that we are doing."