Rite Aid Corp. yesterday reported a first-quarter loss of $238 million, more than fivefold what it lost in the same quarter a year earlier, despite an increase in sales.
The nation's third-largest drugstore chain lost 92 cents per share on sales of $3.8 billion for the quarter that ended May 27, compared to a loss of $44 million or 17 cents per share on sales of $3.6 billion for last year's restated first quarter.
For the fiscal year 2000, which ended Feb. 26, the Camp Hill, Pa.-based chain reported a loss of $1.1 billion, or $4.45 per share, on sales of $14.7 billion.
That compared with a net loss of $422 million, or $1.64 per share, for the restated 1999 fiscal year.
The chain also restated previously reported earnings for fiscal year 1999 and fiscal 1998 which showed mushrooming losses over the last three fiscal years. The adjustments reduced net income for those two years by more than $1 billion, resulting in total losses of $608 million.
The earnings yesterday were the first to be released by Rite Aid since new management began trying to turn the chain around in December.
Last year, the retailer became mired in accounting problems and saw its share price plunge 80 percent.
Rite Aid stock fell $1.75 yesterday, closing at $6.625 in after-hours trading. The company released its earnings report after markets closed.
Robert G. Miller, the former Kroger Co. executive who stepped in as Rite Aid chairman and chief executive in December, said the management team spent seven months and $50 million resolving accounting problems.
The losses are related to inventory accounting adjustments and to the former management's overly aggressive expansion program of the last three years, he said.
Rite Aid became saddled with debt under its former chairman and chief executive, Martin Grass, who led a rapid expansion - financed with debt - that included buying Thrifty Payless Inc., the largest drugstore chain on the West Coast, and PCS Health Systems, the nation's largest pharmacy benefits manager.
In October, the company said it was forced to revise its financial statements, slash its past profit by $500 million and sell assets to pay down its debt.
That news, which shook investor confidence and sent share prices down, was followed by several more months of upheaval.
Grass was ousted in October. The company's longtime auditor KMPG International quit in November, saying it could not trust information from management, and Rite Aid became the subject of an Securities and Exchange Commission probe.
Rite Aid last reported earnings for the quarter that ended Aug. 28, 1999. In January, the company reached an agreement with lenders allowing it to delay releasing remaining quarterly and annual reports for fiscal year 2000. The third-quarter report for the period ending Nov. 27 was due in mid-January.
Miller sought to reassure investors yesterday, telling analysts during a late conference call, "We now are up to date with our financial reports and plan to stay there and be accurate going forward."
Company officials said they had completed an internal investigation and continue to cooperate in SEC probe of past accounting practices.
In June, Rite Aid refinanced its debt for more than two years, making about $460 million available for working capital and general corporate purposes.
The company also said it would strengthen its balance sheet by reducing long-term debt by exchanging more than 17 million shares of common stock common stock for $177.79 million in principal on its outstanding 5.25 percent convertible subordinated notes due 2002.
"The first few months, we worked with lenders on refinancing plans and extensions of most of our maturities," Miller said.
"We have $460 million in cash we can use for turnaround plans and to run our business. With that done, certainly we can go forward."
He also told analysts that, after putting the planned sale of PCS Health Systems on hold, the company now is negotiating with a potential buyer and is "close to a transaction. It could happen in the near term," Miller said.
The chain has curtailed new store development - a major shift from the last few years; it plans to open only 85 new or relocated stores this year, he said.
"Most of the problems of former management was caused by the expansion spree," he said, adding that Rite Aid plans to focus on improving existing stores. "They couldn't manage the number of acquisitions and the number of new and relocated stores."
Before the earnings announcement, one analyst said the new management appeared to be headed in the right direction."I think they're making a lot of progress from what I can see on the outside," said Sheldon Grodsky, director of research for Grodsky Associates Inc.
"They've been tightening all the loose ends on their financing, and more or less have their financing in place for the next year or two. That should give them time to do what they have to do."