Rite Aid cuts view after latest loss

By Jessica Wohl

CHICAGO (Reuters) - Rite Aid Corp (RAD.N) forecast a wider fiscal-year loss as sales keep falling, sending its shares down 11 percent as investors raised new doubts over the No. 3 U.S. drugstore chain's ability to improve its business.

While the company's ninth consecutive quarterly net loss reported on Thursday was not as steep as analysts had expected, its outlook was for fiscal-year results that could fall well below Wall Street's view.

Rite Aid operates most of its stores on the east and west coasts and trails Walgreen Co (WAG.N) and CVS Caremark Corp (CVS.N) in sales, number of locations and market share.

The company has been reducing its debt level, closing some stores, revamping others and renegotiating some leases. But the 2007 acquisition of the Brooks and Eckerd chains added hundreds of stores that have not performed as well as Rite Aid's own locations.

"They're in a bit of strife, especially compared to companies like Walgreens," said Toon van Beeck, senior industry analyst at IBISWorld Inc.

After keeping a sharp eye on cost reduction, Rite Aid executives conceded on a call with analysts on Thursday that they need to switch gears a little bit and work on improving sales at its more than 4,800 stores.

Shares of Rite Aid were down 22 cents to $1.73 in early afternoon trade. A week ago, the shares hit a 52-week high of $2.35.

Shares of Walgreen, which reports its quarterly results next week, fell 2 percent. CVS shares also fell 2 percent.

MORE THAN COST CUTS

The company's net loss narrowed to $116 million, or 14 cents per share, in the second quarter that ended August 29 from $222 million, or 27 cents per share, a year earlier. Analysts on average expected a loss of 16 cents per share, according to Reuters Estimates.

Second-quarter revenue fell 2.7 percent to $6.3 billion, due in part to store closings. Sales at stores open at least a year fell 1.1 percent, with such sales up 0.8 percent in the pharmacy section and down 4.9 percent for general merchandise.

Drugstores such as Rite Aid get about two-thirds of their sales from prescriptions, which have held up relatively well even though low-cost options led by Wal-Mart Stores Inc's (WMT.N) $4 generics program have gained popularity.

Rite Aid said consumers "seem real value driven," buying general merchandise items on sale, and shopping around paydays has increased.

"It doesn't sound too different than many other retailers," said Doug Conn, managing director and retail credit specialist at Hexagon Securities. "They're just seeing less demand and the more price-sensitive consumer in their stores."

The company said it would launch a loyalty program nationwide next year and take other steps to drive sales.