Novice Investing - Rite Aid Bitter Result

Date: Tuesday 13th 2008f May 2008 07:23:37 AM

Rite Aid Bitter Result - 12/20/2007

By: Hari Wibowo

Rite Aid Corp. (RAD) reported third quarter loss that missed estimate and forecasted a gloomy 2008 result. During the third quarter of 2007, Rite Aid reported a loss of $ 93 Million or 12 cents per share versus 7 cents estimate. For 2008, Rite Aid now expects loss of around $ 176 Million versus earlier estimate of $ 119 Million. Meanwhile, store count now stands at 5089 stores.

How dire is the situation at Rite Aid? We have discussed about the Rite Aid's high debt load which is worsened by the acquisition of Eckerd drugstore chains. Let us review Rite Aid's latest balance sheet to identify any changes. As Of September 1st 2007, Rite Aid possessed a $ 5.7 Billion long term debt and $ 170 Million in cash. Quarterly Interest payment totalled $ 123 Million, which is almost what Rite Aid cash on hand. Therefore, a slight miss in projection will result in insolvency for the company.

And this earning miss is a good case of this misprojection. With 5 cents per loss earning miss, essentially loss is $ 37 Million worse for the quarter. Further, Rite Aid's latest 2008 loss forecast is $ 57 Million worse now. In total, if everything remains the same, Rite Aid available cash should go down by $ 37 + $ 57 = $ 94 Million now. That brings total cash on hand to $ 76 Million. With $ 24 Billion in annual sales, total cash is ~ one day sales now!

Now comes a good question. Where does Rite Aid find the cash it needed to finance its loss? Lenders will be wary to finance this loss as long term debt already stood at $ 5.7 Billion. This is just a simple math operation. Just as we predicted with Movie Gallery, if Rite Aid continued its losing way, the only way to go is to declare bankruptcy protection. Plain and simple. With its latest loss on hand, bankruptcy while far from certain, is more imminent now. Further with the economy forecasted to be slowing down, Rite Aid same store sales will probably turn negative in the next several months. On the third quarter, same store sales were up a meager 0.7%, hardly inspiring. It is no surprise that as of this writing, Rite Aid shares tumbled more than 20% as investors digest the third quarter's result.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Rite Aid Corp. (RAD) or any other securities.

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