Rite Aid (NYSE: RAD) is a drugstore chain in the United States and a Fortune 500 company headquartered in East Pennsboro Township, Pennsylvania, near Camp Hill. It operates more than 4,780 stores in 31 states and the District of Columbia, features a strong presence on both the East and West Coasts, and employs approximately 109,000 associates. Rite Aid is the largest drugstore chain on the East Coast and the third largest drugstore chain in the U.S.
Rite Aid began in 1962 as a single store opened in Scranton, Pennsylvania called Thrif D Discount Center. After several years of growth, Rite Aid adopted its current name and debuted as a public company in 1968. Today, Rite Aid is publicly traded on the New York Stock Exchange under the ticker RAD. Rite Aid reported total sales of USD $24.3 billion in fiscal year 2008. In 2008, its market capitalization dropped to under $500 million. As of 25 February 2010, the market capitalization of Rite Aid was about $1.3 billion.
Its major competitors are CVS and Walgreens.
Rite Aid Corporation, which ranks as the third largest retail drugstore chain in the United States, operates about 3,380 drugstores in 28 states across the nation and in the District of Columbia. Rite Aid's stores average 12,750 square feet and offer a professional pharmacy service, a full selection of health and personal care products, an assortment of general merchandise, and more than 1,900 Rite Aid brand products. Through an alliance with General Nutrition Companies, Inc. (GNC), a leading retailer of specialty vitamins and supplements, more than a quarter of Rite Aid outlets include a GNC "store-within-the-store." Prescription drug revenue accounts for about 63 percent of total sales. Over-the-counter medications and personal care products generate 10 percent; health and beauty aids, 5 percent; and general merchandise, 22 percent. More than half of the company's stores are freestanding outlets, nearly 40 percent have a drive-through pharmacy, and close to 70 percent include a one-hour photofinishing department. To keep its stores supplied, Rite Aid maintains 12 distribution centers and overflow storage facilities.
Rite Aid Corporation, incorporated in 1968, is a retail drugstore chain in the United States. The Company operates its drugstores in 31 states across the country and in the District of Columbia. As of February 27, 2010, it operated 4,780 stores. In its stores, the Company sells prescription drugs and an assortment of other merchandise, which it calls front-end products. During the fiscal year ended February 27, 2010 (fiscal 2010), prescription drug sales accounted for 67.9% of its total sales. The Company offers approximately 25,000 front-end products, which accounted for the remaining 32.1% of its total sales during fiscal 2010. Front end products include over-the-counter medications, health and beauty aids, personal care items, cosmetics, household items, beverages, convenience foods, greeting cards, seasonal merchandise, and other everyday and convenience products, as well as photo processing. It offers approximately 3,300 products under the Rite Aid private brand, which contributed approximately 15% of its front-end sales in the categories during fiscal 2010.
The overall average size of each store in the Company’s chain is approximately 12,500 square feet. As of February 27, 2010, approximately 59% of its stores are freestanding; approximately 50% of its stores include a drive-thru pharmacy; approximately 40% include one-hour photo shops, and approximately 40% include a GNC store-within-Rite Aid-store. The types and number of front-end products in each store vary, and selections are based on customer needs and preferences and available space. The Company has strategic alliance with GNC, under which it had opened 1,908 GNC stores-within-Rite Aid-stores as of February 27, 2010. It also owns a 55,800 square foot ice cream manufacturing facility located in El Monte, California.
In 1971 the company acquired Sera-Tec Biologicals, Inc., of New Jersey, which was combined with the company's prior acquisitions of Immuno Serums and Sero-Genics to comprise the company's medical services division. Rite Aid also purchased a 50 percent equity in Superdrug Stores, Ltd., of the United Kingdom. During this period of rapid growth, Rite Aid pharmacies were filling more than five million prescriptions a year. To consolidate management and increase efficiency of the rapidly growing number of stores, Rite Aid separated its market area into five divisions and 20 supervisory districts.
In 1972 Rite Aid focused on internal efficiency in preparation for additional expansion. Also in 1972, Sera-Tec Biologicals, Biogenics, Inc., and Immuno Blood Services, Inc., were merged to form what would become known in the early 1990s as Sera-Tec. When 1972's Hurricane Agnes wrought severe damage on the company's stores in Wilkes-Barre, Pennsylvania, and Elmira, New York, it also damaged the phone and water service at corporate headquarters. Teams worked around the clock to make the necessary repairs, and stores were reopened fairly rapidly. In fact, Rite Aid handled the disaster so impressively that it still was able to report filling more than 6.25 million prescriptions that year.
In 1973, despite the Middle East oil embargo and ensuing recession, Rite Aid again began making acquisitions. It acquired the 49-store Thomas Holmes Corp. chain and the 50-store Warner chain, both in greater Philadelphia. The company also set about creating distribution centers that could handle the rapidly multiplying number of Rite Aid stores. It expanded its Shiremanstown distribution center by 71,000 square feet, enabling the facility to supply up to 500 stores. The company also built an automated distribution center in Rome, New York, to handle the growing northeastern market. Rite Aid's accounting and data processing departments moved to a separate building in Shiremanstown, which became the hub of the Rite Aid complex.
Further activity during this time included reducing its holdings in Superdrug PLC, the successor to Superdrug Stores, Ltd., to 42.5 percent, selling a 7.5 percent interest. The number of private-label products that appeared bearing the Rite Aid logo climbed to 700. In addition, Rite Aid became one of the first drugstore chains in the United States to implement a senior citizen discount cardholder program.
By 1974 the Rome distribution center was supplying 131 Rite Aid stores. Rite Aid also created a fifth Sera-Tec center in Pittsburgh, just as the Dow Jones Industrial Average was falling to 663--the lowest since 1970--and worldwide inflation set in. Over the next year Rite Aid focused on internal organization and increased its security department in an effort to reduce shoplifting.
By 1976 Rite Aid resumed acquisitions, purchasing the 52-store Keystone Centers, Inc. of Pennsylvania and New Jersey. The following year, it acquired 99 more stores by buying the Read's, Inc. drug chain in Baltimore. This $18 million purchase led to Rite Aid's garnering the largest market share in Baltimore. In 1977 Rite Aid's private-label products, with almost 900 different items, accounted for 9 percent of its retail sales.
Although the value of the dollar plunged in 1978, Rite Aid's momentum did not. Rite Aid acquired 11 stores from Red Shield in Pittsburgh and the four-store Quality Drugs chain of greater Philadelphia. By focusing on providing value in the most efficient manner possible, Rite Aid gained substantial market share in the major metropolitan markets of Buffalo, Rochester, and Syracuse, New York; Charleston, South Carolina; Baltimore; and Philadelphia. The company also added 11,500 square feet to its executive space in Shiremanstown, where it bought a 79,000-square-foot building to house the growing finance, advertising, store engineering, and construction departments. Then, focusing on its central businesses, Rite Aid sold the Blue Ridge Nursing Homes in Camp Hill and in Harrisburg, Pennsylvania, for an after-tax profit of $1.8 million.
In 1979 Rite Aid acquired six U-Save stores in North Carolina and eastern Tennessee, as well as nine Shop Rite stores in the Hudson Valley. It redesigned its company logo and updated its store interiors, using mirrored canopies and bright colors throughout, while streamlining checkout counters in the process. In order to save time and money on West Virginia store openings and transportation costs among 140 of its existing stores, Rite Aid started up a 210,000-square-foot distribution center in Nitro, West Virginia. Moreover, the company set ambitious goals, such as increasing store count by 10 percent every year and continuing to open higher-margin pharmacies throughout its drugstore chain.
During these same months of 1999, however, Rite Aid was simultaneously in the process of going seriously off-track. Investigations conducted by Business Week magazine and the Wall Street Journal began delving into allegations of dealings between Rite Aid and companies whose owners included members of the Grass family--dealings that the company had not disclosed. The company soon launched an internal investigation, which indeed uncovered undisclosed holdings in Rite Aid suppliers by Grass family members. At the same time, Rite Aid began running into serious financial problems, in part because of difficulties integrating the recent acquisitions, particularly that of Thrifty PayLess, but also because of the heavy debt it had accrued to fund the growth spurt; the total debt load reached as high as $6.7 billion. In March, Rite Aid announced that its fiscal 1999 fourth quarter earnings would fall far short of expectations, sending its stock plunging 39 percent. Shareholder lawsuits were soon filed. In June, after uncovering accounting irregularities, the company made its first downward adjustment in its earnings for the previous three fiscal years; in October it went further, adjusting earnings for these years down by $500 million. Late that month, Rite Aid faced a huge debt payment that it was not going to be able to make. The company's bankers agreed to a one-year extension of the credit, but not before forcing the ouster of Martin Green. After a short period of interim leadership, Robert G. Miller was named chairman and CEO of Rite Aid in December 1999. Miller had been CEO of Fred Meyer, Inc. from 1991 until the acquisition of the Portland, Oregon-based grocery retailer by the Kroger Co. in May 1999. Miller brought with him three other former Fred Meyer executives, including Mary F. Sammons, who was named president and chief operating officer. By the time the new executive team was in place, Rite Aid's stock was trading well under $10 per share, down from the 52-week high of $51.13 in January 1999.
Miller and company quickly brought Rite Aid's store expansion program to a halt and launched a rigorous review of the existing store portfolio, targeting underperforming units for closure. In 2001 alone, 144 stores were shuttered. Sammons also slashed prices on Rite Aid's 1,500 top-selling products by 20 percent to get customers back into the stores and worked with vendors to repair supply-chain problems. In June 2000 the new management team completed a $1 billion refinancing plan, providing some breathing room for a company on the verge of a bankruptcy filing. Then in July, after months of poring over the books for the previous three-plus years, Rite Aid revealed even larger losses: an additional $1.06 billion in losses for 1998 and 1999, turning what had been $450 million in profits for those years into losses of $600 million. The $1.6 billion restated earnings total amounted to the largest accounting restatement in U.S. history--a dubious distinction that soon would be erased by the wave of accounting scandals that shook the country in 2000. In addition, the company reported a $1.14 billion loss for 2000. In a move to further reduce debt, Rite Aid also unveiled the sale of PCS Health Systems to Advance Paradigm, Inc. for about $910 million plus equity securities in the resulting firm, AdvancePCS, Inc. The deal closed in October 2000. The following March, Rite Aid sold its stake in AdvancePCS for $284.2 million.
Meanwhile, litigation connected to the accounting scandal and the former managers of Rite Aid proliferated. In November 2000 the company agreed to pay at least $200 million to settle the class-action suits brought by shareholders contending that the firm's stock had been inflated by falsified bookkeeping. While Miller said, "This is a major step in putting the past behind us," several former top Rite Aid officials still had to contend with the legal consequences of their past actions, as formal investigations had been launched by the Securities and Exchange Commission (SEC) and federal prosecutors. In June 2002 a federal grand jury in Pennsylvania issued a 37-count indictment, charging Martin Grass and three other former Rite Aid executives with masterminding an illegal accounting scheme. One year later, on the eve of his trial, Grass pleaded guilty to conspiracy to defraud and conspiracy to obstruct justice. He faced as many as eight years in prison. In all, six former Rite Aid executives either pled guilty to or were convicted of criminal conduct in connection with the accounting fraud. They included the top four administrators at the firm during the late 1990s. The SEC also launched a suit seeking civil penalties against the former executives that potentially could amount to millions of dollars.
Outside the courtroom, Rite Aid continued its turnaround efforts. A $3.2 billion loan refinancing completed in June 2001 further strengthened the firm's financial footing, helping reduce total debt to about $3.7 billion and easing it back from the brink of bankruptcy. Additional funds were raised through the sale of the firm's stake in drugstore.com between January and May 2002. Drugstore.com continued to function as Rite Aid's exclusive online pharmacy. During 2002 and 2003 an additional 156 underperforming stores were closed, further reducing the store count to about 3,400. For the year ending on March 1, 2003, Rite Aid trimmed its net loss to $112.1 million, compared with the $827.7 million loss of the preceding year. Perhaps most impressively, Sammons's efforts at turning around the performance at the stores were clearly beginning to pay off: Same-store sales (sales at stores open more than one year) were up 6.7 percent for the year. Sammons was rewarded by being promoted to president and CEO in June 2003, with Miller remaining chairman.
By the third quarter of 2004, Rite Aid was on the verge of a return to steady profitability. Net income of $22.5 million that quarter reduced the net loss for the first nine months of the year to $26.9 million. Another signal of the firm's recovery came in February 2004 when it was reported that Rite Aid had entered the bidding for the Eckerd chain, which J.C. Penney was attempting to sell. Rite Aid reportedly offered as much as $4 billion for the chain, which operated almost 2,800 stores, mostly in the East and South. Given the nascent nature of Rite Aid's recovery, analysts were doubtful that the firm's bid would prevail against competing offers from arch-rival CVS and the Jean Coutu Group Inc., a Canadian firm that owned the Brooks Pharmacy chain in the Northeast. It was nevertheless certain that Rite Aid had entered a new growth phase: In June 2003 the company announced plans to build 175 new stores in its strongest markets over the next two fiscal years. With a keen eye on controlling costs and keeping its books clean, Rite Aid was poised for a full recovery from its black days in the late 1990s.
Principal Competitors: Walgreen Co.; CVS Corporation; Wal-Mart Stores, Inc.; Eckerd Corporation.
OVERALL
Beta: 2.37
Market Cap (Mil.): $1,112.80
Shares Outstanding (Mil.): 890.24
Annual Dividend: --
Yield (%): --
FINANCIALS
RAD Industry Sector
P/E (TTM): -- 5.65 36.23
EPS (TTM): -9.30 -- --
ROI: -10.09 3.86 8.03
ROE: -- 5.02 12.95
Statistics:
Public Company
Incorporated: 1958 as Rack Rite Distributors, Inc.
Employees: 72,000
Sales: $16.54 billion (2004)
Stock Exchanges: New York Pacific
Ticker Symbol: RAD
NAIC: 446110 Pharmacies and Drug Stores
Key Dates:
1958: Alex Grass incorporates Rack Rite Distributors, Inc.
1962: Through Rack Rite, Grass opens his first discount drugstore in Scranton, Pennsylvania, calling it Thrif D Discount Center.
1963: Creation of a drugstore chain begins with the opening of five more stores.
1966: The first Rite Aid pharmacy opens in one of the firm's drugstores in New Rochelle, New York.
1967: Seventy Rite Aid private-label products are introduced.
1968: The firm makes its first public offering of stock and changes its name to Rite Aid Corporation.
1969: The firm's first major acquisition is the 47-store Daw Drug Co. of Rochester, New York.
1982: Rite Aid opens its 1,000th store.
1983: Revenues surpass $1 billion.
1995: Perry Drug Stores Inc. is acquired; Martin Grass succeeds his father, Alex Grass, as Rite Aid's chairman and CEO.
1996: Rite Aid expands to the West Coast through a $2.3 billion deal for Thrifty PayLess Holdings, Inc.
1997: The acquisitions of K&B, Incorporated and Harco, Inc. add more than 300 stores located in the South.
1999: Pharmacy benefits manager PCS Health Systems, Inc. is acquired for $1.5 billion; Rite Aid enters into partnerships with General Nutrition Companies, Inc. and drugstore.com; the company begins restating earnings from previous years because of accounting irregularities; this, coupled with financial difficulties brought on by a huge $6.7 billion debt load, leads to the ouster of Chairman and CEO Martin Grass; Robert G. Miller is brought in from the outside as his successor.
2000: Rite Aid further restates its earnings for 1998 and 1999, revealing an additional $1.06 billion in losses; PCS Health Systems is sold off.
2002: Martin Grass and three other former Rite Aid executives are indicted on federal criminal charges stemming from the accounting scandal.
2003: Mary F. Sammons is named president and CEO; Grass pleads guilty to two criminal counts.
Name Age Since Current Position
Mary Sammons 64 2010 Chairman of the Board
Michel Coutu 56 2007 Non-Executive Co-Chairman of the Board
John Standley 47 2010 President, Chief Executive Officer, Director
Frank Vitrano 54 2008 Chief Financial Officer, Senior Executive Vice President, Chief Administrative Officer
Kenneth Martindale 50 2010 Chief Operating Officer
Marc Strassler 62 2009 Executive Vice President, General Counsel, Secretary
Brian Fiala 49 2007 Executive Vice President - Store Operations
Robert Thompson 56 2009 Executive Vice President - Pharmacy
Tony Montini 2011 Executive Vice President - Merchandising
Douglas Donley 46 2005 Chief Accounting Officer, Senior Vice President
Bryan Shirtliff 2011 Senior Vice President - Merchandising
Philip Satre 61 2009 Lead Director
Robert Miller 66 2007 Director
David Jessick 57 2009 Director
Jonathan Sokoloff 53 1999 Director
Joseph Anderson 68 2005 Director
Marcy Syms 59 2005 Director
Andre Belzile 48 2007 Director
Francois Coutu 55 2007 Director
Dennis Wood 71 2007 Director
Michael Regan 62 2007 Director
James Donald 56 2008 Director
Address:
30 Hunter Lane
Camp Hill, Pennsylvania 17011-2400
U.S.A.
Rite Aid began in 1962 as a single store opened in Scranton, Pennsylvania called Thrif D Discount Center. After several years of growth, Rite Aid adopted its current name and debuted as a public company in 1968. Today, Rite Aid is publicly traded on the New York Stock Exchange under the ticker RAD. Rite Aid reported total sales of USD $24.3 billion in fiscal year 2008. In 2008, its market capitalization dropped to under $500 million. As of 25 February 2010, the market capitalization of Rite Aid was about $1.3 billion.
Its major competitors are CVS and Walgreens.
Rite Aid Corporation, which ranks as the third largest retail drugstore chain in the United States, operates about 3,380 drugstores in 28 states across the nation and in the District of Columbia. Rite Aid's stores average 12,750 square feet and offer a professional pharmacy service, a full selection of health and personal care products, an assortment of general merchandise, and more than 1,900 Rite Aid brand products. Through an alliance with General Nutrition Companies, Inc. (GNC), a leading retailer of specialty vitamins and supplements, more than a quarter of Rite Aid outlets include a GNC "store-within-the-store." Prescription drug revenue accounts for about 63 percent of total sales. Over-the-counter medications and personal care products generate 10 percent; health and beauty aids, 5 percent; and general merchandise, 22 percent. More than half of the company's stores are freestanding outlets, nearly 40 percent have a drive-through pharmacy, and close to 70 percent include a one-hour photofinishing department. To keep its stores supplied, Rite Aid maintains 12 distribution centers and overflow storage facilities.
Rite Aid Corporation, incorporated in 1968, is a retail drugstore chain in the United States. The Company operates its drugstores in 31 states across the country and in the District of Columbia. As of February 27, 2010, it operated 4,780 stores. In its stores, the Company sells prescription drugs and an assortment of other merchandise, which it calls front-end products. During the fiscal year ended February 27, 2010 (fiscal 2010), prescription drug sales accounted for 67.9% of its total sales. The Company offers approximately 25,000 front-end products, which accounted for the remaining 32.1% of its total sales during fiscal 2010. Front end products include over-the-counter medications, health and beauty aids, personal care items, cosmetics, household items, beverages, convenience foods, greeting cards, seasonal merchandise, and other everyday and convenience products, as well as photo processing. It offers approximately 3,300 products under the Rite Aid private brand, which contributed approximately 15% of its front-end sales in the categories during fiscal 2010.
The overall average size of each store in the Company’s chain is approximately 12,500 square feet. As of February 27, 2010, approximately 59% of its stores are freestanding; approximately 50% of its stores include a drive-thru pharmacy; approximately 40% include one-hour photo shops, and approximately 40% include a GNC store-within-Rite Aid-store. The types and number of front-end products in each store vary, and selections are based on customer needs and preferences and available space. The Company has strategic alliance with GNC, under which it had opened 1,908 GNC stores-within-Rite Aid-stores as of February 27, 2010. It also owns a 55,800 square foot ice cream manufacturing facility located in El Monte, California.
In 1971 the company acquired Sera-Tec Biologicals, Inc., of New Jersey, which was combined with the company's prior acquisitions of Immuno Serums and Sero-Genics to comprise the company's medical services division. Rite Aid also purchased a 50 percent equity in Superdrug Stores, Ltd., of the United Kingdom. During this period of rapid growth, Rite Aid pharmacies were filling more than five million prescriptions a year. To consolidate management and increase efficiency of the rapidly growing number of stores, Rite Aid separated its market area into five divisions and 20 supervisory districts.
In 1972 Rite Aid focused on internal efficiency in preparation for additional expansion. Also in 1972, Sera-Tec Biologicals, Biogenics, Inc., and Immuno Blood Services, Inc., were merged to form what would become known in the early 1990s as Sera-Tec. When 1972's Hurricane Agnes wrought severe damage on the company's stores in Wilkes-Barre, Pennsylvania, and Elmira, New York, it also damaged the phone and water service at corporate headquarters. Teams worked around the clock to make the necessary repairs, and stores were reopened fairly rapidly. In fact, Rite Aid handled the disaster so impressively that it still was able to report filling more than 6.25 million prescriptions that year.
In 1973, despite the Middle East oil embargo and ensuing recession, Rite Aid again began making acquisitions. It acquired the 49-store Thomas Holmes Corp. chain and the 50-store Warner chain, both in greater Philadelphia. The company also set about creating distribution centers that could handle the rapidly multiplying number of Rite Aid stores. It expanded its Shiremanstown distribution center by 71,000 square feet, enabling the facility to supply up to 500 stores. The company also built an automated distribution center in Rome, New York, to handle the growing northeastern market. Rite Aid's accounting and data processing departments moved to a separate building in Shiremanstown, which became the hub of the Rite Aid complex.
Further activity during this time included reducing its holdings in Superdrug PLC, the successor to Superdrug Stores, Ltd., to 42.5 percent, selling a 7.5 percent interest. The number of private-label products that appeared bearing the Rite Aid logo climbed to 700. In addition, Rite Aid became one of the first drugstore chains in the United States to implement a senior citizen discount cardholder program.
By 1974 the Rome distribution center was supplying 131 Rite Aid stores. Rite Aid also created a fifth Sera-Tec center in Pittsburgh, just as the Dow Jones Industrial Average was falling to 663--the lowest since 1970--and worldwide inflation set in. Over the next year Rite Aid focused on internal organization and increased its security department in an effort to reduce shoplifting.
By 1976 Rite Aid resumed acquisitions, purchasing the 52-store Keystone Centers, Inc. of Pennsylvania and New Jersey. The following year, it acquired 99 more stores by buying the Read's, Inc. drug chain in Baltimore. This $18 million purchase led to Rite Aid's garnering the largest market share in Baltimore. In 1977 Rite Aid's private-label products, with almost 900 different items, accounted for 9 percent of its retail sales.
Although the value of the dollar plunged in 1978, Rite Aid's momentum did not. Rite Aid acquired 11 stores from Red Shield in Pittsburgh and the four-store Quality Drugs chain of greater Philadelphia. By focusing on providing value in the most efficient manner possible, Rite Aid gained substantial market share in the major metropolitan markets of Buffalo, Rochester, and Syracuse, New York; Charleston, South Carolina; Baltimore; and Philadelphia. The company also added 11,500 square feet to its executive space in Shiremanstown, where it bought a 79,000-square-foot building to house the growing finance, advertising, store engineering, and construction departments. Then, focusing on its central businesses, Rite Aid sold the Blue Ridge Nursing Homes in Camp Hill and in Harrisburg, Pennsylvania, for an after-tax profit of $1.8 million.
In 1979 Rite Aid acquired six U-Save stores in North Carolina and eastern Tennessee, as well as nine Shop Rite stores in the Hudson Valley. It redesigned its company logo and updated its store interiors, using mirrored canopies and bright colors throughout, while streamlining checkout counters in the process. In order to save time and money on West Virginia store openings and transportation costs among 140 of its existing stores, Rite Aid started up a 210,000-square-foot distribution center in Nitro, West Virginia. Moreover, the company set ambitious goals, such as increasing store count by 10 percent every year and continuing to open higher-margin pharmacies throughout its drugstore chain.
During these same months of 1999, however, Rite Aid was simultaneously in the process of going seriously off-track. Investigations conducted by Business Week magazine and the Wall Street Journal began delving into allegations of dealings between Rite Aid and companies whose owners included members of the Grass family--dealings that the company had not disclosed. The company soon launched an internal investigation, which indeed uncovered undisclosed holdings in Rite Aid suppliers by Grass family members. At the same time, Rite Aid began running into serious financial problems, in part because of difficulties integrating the recent acquisitions, particularly that of Thrifty PayLess, but also because of the heavy debt it had accrued to fund the growth spurt; the total debt load reached as high as $6.7 billion. In March, Rite Aid announced that its fiscal 1999 fourth quarter earnings would fall far short of expectations, sending its stock plunging 39 percent. Shareholder lawsuits were soon filed. In June, after uncovering accounting irregularities, the company made its first downward adjustment in its earnings for the previous three fiscal years; in October it went further, adjusting earnings for these years down by $500 million. Late that month, Rite Aid faced a huge debt payment that it was not going to be able to make. The company's bankers agreed to a one-year extension of the credit, but not before forcing the ouster of Martin Green. After a short period of interim leadership, Robert G. Miller was named chairman and CEO of Rite Aid in December 1999. Miller had been CEO of Fred Meyer, Inc. from 1991 until the acquisition of the Portland, Oregon-based grocery retailer by the Kroger Co. in May 1999. Miller brought with him three other former Fred Meyer executives, including Mary F. Sammons, who was named president and chief operating officer. By the time the new executive team was in place, Rite Aid's stock was trading well under $10 per share, down from the 52-week high of $51.13 in January 1999.
Miller and company quickly brought Rite Aid's store expansion program to a halt and launched a rigorous review of the existing store portfolio, targeting underperforming units for closure. In 2001 alone, 144 stores were shuttered. Sammons also slashed prices on Rite Aid's 1,500 top-selling products by 20 percent to get customers back into the stores and worked with vendors to repair supply-chain problems. In June 2000 the new management team completed a $1 billion refinancing plan, providing some breathing room for a company on the verge of a bankruptcy filing. Then in July, after months of poring over the books for the previous three-plus years, Rite Aid revealed even larger losses: an additional $1.06 billion in losses for 1998 and 1999, turning what had been $450 million in profits for those years into losses of $600 million. The $1.6 billion restated earnings total amounted to the largest accounting restatement in U.S. history--a dubious distinction that soon would be erased by the wave of accounting scandals that shook the country in 2000. In addition, the company reported a $1.14 billion loss for 2000. In a move to further reduce debt, Rite Aid also unveiled the sale of PCS Health Systems to Advance Paradigm, Inc. for about $910 million plus equity securities in the resulting firm, AdvancePCS, Inc. The deal closed in October 2000. The following March, Rite Aid sold its stake in AdvancePCS for $284.2 million.
Meanwhile, litigation connected to the accounting scandal and the former managers of Rite Aid proliferated. In November 2000 the company agreed to pay at least $200 million to settle the class-action suits brought by shareholders contending that the firm's stock had been inflated by falsified bookkeeping. While Miller said, "This is a major step in putting the past behind us," several former top Rite Aid officials still had to contend with the legal consequences of their past actions, as formal investigations had been launched by the Securities and Exchange Commission (SEC) and federal prosecutors. In June 2002 a federal grand jury in Pennsylvania issued a 37-count indictment, charging Martin Grass and three other former Rite Aid executives with masterminding an illegal accounting scheme. One year later, on the eve of his trial, Grass pleaded guilty to conspiracy to defraud and conspiracy to obstruct justice. He faced as many as eight years in prison. In all, six former Rite Aid executives either pled guilty to or were convicted of criminal conduct in connection with the accounting fraud. They included the top four administrators at the firm during the late 1990s. The SEC also launched a suit seeking civil penalties against the former executives that potentially could amount to millions of dollars.
Outside the courtroom, Rite Aid continued its turnaround efforts. A $3.2 billion loan refinancing completed in June 2001 further strengthened the firm's financial footing, helping reduce total debt to about $3.7 billion and easing it back from the brink of bankruptcy. Additional funds were raised through the sale of the firm's stake in drugstore.com between January and May 2002. Drugstore.com continued to function as Rite Aid's exclusive online pharmacy. During 2002 and 2003 an additional 156 underperforming stores were closed, further reducing the store count to about 3,400. For the year ending on March 1, 2003, Rite Aid trimmed its net loss to $112.1 million, compared with the $827.7 million loss of the preceding year. Perhaps most impressively, Sammons's efforts at turning around the performance at the stores were clearly beginning to pay off: Same-store sales (sales at stores open more than one year) were up 6.7 percent for the year. Sammons was rewarded by being promoted to president and CEO in June 2003, with Miller remaining chairman.
By the third quarter of 2004, Rite Aid was on the verge of a return to steady profitability. Net income of $22.5 million that quarter reduced the net loss for the first nine months of the year to $26.9 million. Another signal of the firm's recovery came in February 2004 when it was reported that Rite Aid had entered the bidding for the Eckerd chain, which J.C. Penney was attempting to sell. Rite Aid reportedly offered as much as $4 billion for the chain, which operated almost 2,800 stores, mostly in the East and South. Given the nascent nature of Rite Aid's recovery, analysts were doubtful that the firm's bid would prevail against competing offers from arch-rival CVS and the Jean Coutu Group Inc., a Canadian firm that owned the Brooks Pharmacy chain in the Northeast. It was nevertheless certain that Rite Aid had entered a new growth phase: In June 2003 the company announced plans to build 175 new stores in its strongest markets over the next two fiscal years. With a keen eye on controlling costs and keeping its books clean, Rite Aid was poised for a full recovery from its black days in the late 1990s.
Principal Competitors: Walgreen Co.; CVS Corporation; Wal-Mart Stores, Inc.; Eckerd Corporation.
OVERALL
Beta: 2.37
Market Cap (Mil.): $1,112.80
Shares Outstanding (Mil.): 890.24
Annual Dividend: --
Yield (%): --
FINANCIALS
RAD Industry Sector
P/E (TTM): -- 5.65 36.23
EPS (TTM): -9.30 -- --
ROI: -10.09 3.86 8.03
ROE: -- 5.02 12.95
Statistics:
Public Company
Incorporated: 1958 as Rack Rite Distributors, Inc.
Employees: 72,000
Sales: $16.54 billion (2004)
Stock Exchanges: New York Pacific
Ticker Symbol: RAD
NAIC: 446110 Pharmacies and Drug Stores
Key Dates:
1958: Alex Grass incorporates Rack Rite Distributors, Inc.
1962: Through Rack Rite, Grass opens his first discount drugstore in Scranton, Pennsylvania, calling it Thrif D Discount Center.
1963: Creation of a drugstore chain begins with the opening of five more stores.
1966: The first Rite Aid pharmacy opens in one of the firm's drugstores in New Rochelle, New York.
1967: Seventy Rite Aid private-label products are introduced.
1968: The firm makes its first public offering of stock and changes its name to Rite Aid Corporation.
1969: The firm's first major acquisition is the 47-store Daw Drug Co. of Rochester, New York.
1982: Rite Aid opens its 1,000th store.
1983: Revenues surpass $1 billion.
1995: Perry Drug Stores Inc. is acquired; Martin Grass succeeds his father, Alex Grass, as Rite Aid's chairman and CEO.
1996: Rite Aid expands to the West Coast through a $2.3 billion deal for Thrifty PayLess Holdings, Inc.
1997: The acquisitions of K&B, Incorporated and Harco, Inc. add more than 300 stores located in the South.
1999: Pharmacy benefits manager PCS Health Systems, Inc. is acquired for $1.5 billion; Rite Aid enters into partnerships with General Nutrition Companies, Inc. and drugstore.com; the company begins restating earnings from previous years because of accounting irregularities; this, coupled with financial difficulties brought on by a huge $6.7 billion debt load, leads to the ouster of Chairman and CEO Martin Grass; Robert G. Miller is brought in from the outside as his successor.
2000: Rite Aid further restates its earnings for 1998 and 1999, revealing an additional $1.06 billion in losses; PCS Health Systems is sold off.
2002: Martin Grass and three other former Rite Aid executives are indicted on federal criminal charges stemming from the accounting scandal.
2003: Mary F. Sammons is named president and CEO; Grass pleads guilty to two criminal counts.
Name Age Since Current Position
Mary Sammons 64 2010 Chairman of the Board
Michel Coutu 56 2007 Non-Executive Co-Chairman of the Board
John Standley 47 2010 President, Chief Executive Officer, Director
Frank Vitrano 54 2008 Chief Financial Officer, Senior Executive Vice President, Chief Administrative Officer
Kenneth Martindale 50 2010 Chief Operating Officer
Marc Strassler 62 2009 Executive Vice President, General Counsel, Secretary
Brian Fiala 49 2007 Executive Vice President - Store Operations
Robert Thompson 56 2009 Executive Vice President - Pharmacy
Tony Montini 2011 Executive Vice President - Merchandising
Douglas Donley 46 2005 Chief Accounting Officer, Senior Vice President
Bryan Shirtliff 2011 Senior Vice President - Merchandising
Philip Satre 61 2009 Lead Director
Robert Miller 66 2007 Director
David Jessick 57 2009 Director
Jonathan Sokoloff 53 1999 Director
Joseph Anderson 68 2005 Director
Marcy Syms 59 2005 Director
Andre Belzile 48 2007 Director
Francois Coutu 55 2007 Director
Dennis Wood 71 2007 Director
Michael Regan 62 2007 Director
James Donald 56 2008 Director
Address:
30 Hunter Lane
Camp Hill, Pennsylvania 17011-2400
U.S.A.