Rite Aid Corp. reported yesterday that its fourth-quarter earnings declined 39 percent, apparently suffering more than expected from the company's aggressive expansion efforts.
Net income fell to $73 million, or 28 cents a share, in the quarter that ended Feb. 27, from $119.7 million, or 44 cents, a year earlier.
Three weeks ago, Rite Aid warned that its earnings would not meet estimates, and would be in the 30 cents to 32 cents range. Analysts polled by First Call Corp. had estimated that earnings would reach 52 cents.
While the Camp Hill, Pa.-based company is disappointed by its fourth-quarter results, "Rite Aid's fundamentals remain strong," Martin L. Grass, chairman and chief executive officer, said in a statement.
"We will meet the challenges we currently face by pursuing the successful business strategy that has fueled Rite Aid's growth over the past four years," Grass said. "In short, we are very optimistic about the future of the company."
Rite Aid shares, which plunged 39 percent when the company issued its earnings warnings March 12, closed yesterday at $25.6875, down 25 cents.
The weak earnings came from greater-than-expected expenses from opening and closing stores, and from delays in moving from a Pennsylvania distribution center to a new one in Perryman in Harford County, Rite Aid said.
In addition, the earnings were hurt by the cost of liquidating inventory at 208 stores that the chain closed in the third and fourth quarters.
The chain also said it acquired PCS Health Systems five weeks earlier than expected, on Jan. 22, which did not allow time for benefits from economies of scale.
Problems with start-up software at the new 875,000-square-foot distribution center in Perryman caused an 11-week delay in closing the old center.
"It's clear Rite Aid probably had too many things going on last year," said Philip J. Muldoon III, an analyst with McDonald Investments in Cleveland. "It also looks like some of the effects will be enduring.
"The fact that they missed the numbers from the warning means some of those problems are much more far-reaching," he said.
Rite Aid's Perryman distribution facility is now operational and there are plans to increase the number of stores it services throughout the year, Grass said. The integration of PCS Health Systems, purchased for $1.5 billion, is now on target, he said.
During the quarter, 79 stores were opened, 85 closed and 127 relocated or enlarged. The company ended the year with 3,821 stores in operation. The company is ranked third among U.S. drugstore chains, behind No. 1 Walgreen Co. and CVS Corp.
Total sales rose 12 percent to $3.57 billion from $3.19 billion.
For the year, net income was $158 million or 60 cents per diluted share, compared with $316.4 million or $1.22 per diluted share for the period a year earlier.
Sales for the year rose 11.9 percent to $12.7 million, compared with $11.4 million in the prior year.
Pub Date: 3/30/99