Rite Aid Corp., the country's third-largest drugstore chain, reported yesterday its first quarterly profit in five years as asset sales and a tax benefit helped nudge the company into the black.
The company reported net income of $2.6 million on sales of $3.9 billion for its fiscal first quarter, which ended June 1.
But after paying preferred stock dividends, Rite Aid said the per-share results translated to a 1-cent loss. In the corresponding quarter last year, Rite Aid lost $211.1 million on sales of $3.7 billion, or 56 cents a share.
Excluding noncash charges and gains, Rite Aid had a net loss of $19.3 million, or 5 cents a share, the company said. Analysts surveyed by Zacks Investment Research Inc. had expected a loss of 7 cents a share.
The company had an income tax benefit of $44 million and a $16.9 million gain, mainly on the sale of Drugstore.com stock. Charges in the quarter included $20 million in legal expenses related to the investigation by the U.S. attorney in Harrisburg of the business practices of some former executives.
Three of the former executives, including former Chief Executive Officer Martin L. Grass, and one current executive were indicted Friday on charges stemming from a suspected accounting scheme that forced the company to restate earnings by $1.6 billion.
In the most recent quarter, Rite Aid's earnings before interest, taxes, depreciation and amortization - a figure that several analysts said they watch closely as an indicator of the company's health - climbed 21 percent to $158.3 million from $131.3 million in last year's first quarter. The company had offered guidance of $135 million to $145 million for the quarter.
"We're very pleased with first-quarter results," Robert G. Miller, Rite Aid's chairman and chief executive officer, said during a conference call yesterday. "We are continuing to make good headway in creating a more efficient company."
Miller said he expects Rite Aid to incur net losses in the second and third quarters, and possibly return to profitability in the fourth quarter.
Rite Aid, based in Camp Hill, Pa., near Harrisburg, has benefited from very good fundamentals in the drugstore industry, said Neil Currie, a food and drug retail analyst with UBS Warburg in New York.
Rite Aid's same-store sales were 8.3 percent higher in the first quarter than in last year's corresponding quarter. Prescription sales grew 11.8 percent, and non-pharmacy store sales grew 2.7 percent, Rite Aid said.
"Where they really lag the competition is their sales," Currie said. "Their sales per square foot is significantly behind Walgreens and CVS."
A Rite Aid spokeswoman said yesterday that the company doesn't release figures for sales per square foot. As of June 1, Rite Aid had 3,454 stores in 28 states and the District of Columbia. The company closed 45 stores in the past quarter.
Rite Aid's first-quarter results signal that the company is on the road to recovery, said Sheldon Grodsky, director of research for Grodsky Associates Inc., a brokerage in South Orange, N.J.
"Everyone would like them to move faster, but whoever said Rome wasn't built in a day had Rite Aid's profit in mind," Grodsky said.
Shares of Rite Aid gained 13 cents yesterday to close at $2.68 on the New York Stock Exchange.