Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of drugstore-chain Rite Aid (NYSE: RAD ) were getting high off their own supply, climbing as much as 10% on improved same-store sales in January.
So what: Any sign of life is good news for the debt-laden retailer, apparently. Comparable sales grew by just 0.3%, but that was enough to spark the bull rush. You might think Rite Aid benefited from this winter's especially bad flu season, but even as flu shots and related prescriptions increased, pharmacy revenue still fell 1.4%. Comparable sales from the rest of store gained 4.2%, benefiting, in part, from over-the-counter flu-related sales. Overall revenue declined by less than 1%, as the company continues to close stores.
Now what: Rite Aid is going to need more than a 0.3% increase in same-store sales to get back to profitability. The company has nearly $6 billion in long-term debt, and continues to lose money. It's hard to see how the company will get back to financial health without selling a significant amount of real estate to pay off its debt. It racks up over $500 million in interest expenses a year, enough to kill any operating profit. Investors can hope for a buyout from one of its more-prosperous rivals, like Walgreen's or CVS, but that seems unlikely with Rite Aid's debt load. I'm keeping my distance.
Too funny. The guy that wrote that article Jeremy Bowman has a grand total of two followers at the motley fool blog network. That was pretty much a hack job of trying to slam RAD. He even lies when he says that RAD "continues to lose money." Why no mention of the recent profitable quarter Jeremy? Cracks me up that being a member of Motley Fool gives an absolute nobody, credablility and bully pulpit to be picked up by Yahoo.
I don't understand how an article like this can be posted as news. As noted, this writer missed the news on the refi and doesn't appear to understand RAD or the drugstore business. Clearly, he doesn't understand the postive impact that generics have on gross profit dollars. Also, he had a comment about RAD "selling a significant amount of real estate". Well, as of FY 2012 year end, RAD owned 259 operating store locations, its warehouses, its corporate headquarters, its ice cream manufacturing plant and other nonoperating store locations. Did the writer not know this? Don't get me wrong. RAD generated $6.4 million and $27.7 million of cash from sale and leasebacks and the sale of assets and investments, respectively, in the 39 weeks ended December 1, 2012 . And, I would expect asset sales to continue to help RAD's cash flow.
Also a typical example of where somebody writes an article and puts it in the pipeline before a major news announcement. They then have egg on their face when news comes out to the contrary. The guy is probably hiding under a rock in embarrassnewnt now. Many people on this message board have more readers and followers than many of the posters on Seeking Alpha and other sites. One of the major contributors for Seeking Alpha that had hundreds of followers used to actually ask for my advice on the PBY message board. I would give him my assessment and then he would post as if they were his ideas. He actually gave me credit one time. I prefer to be anonymous. DaninFW
Thanks Ace ! some people still thing that when RAD closes stores that means things are on the up and up and that's because RAD doesn't count these failing stores in Same Store Sales, LOL! THey don't have a clue!