Rite Aid needs more than a band-aid
Rite Aid Corp is sporting a Long Term Debt to Cash ratio of 62 to 1 with negative earnings and cash flow for as far as the eye can see. How do they survive? Again 6.2 billion in long term debt versus 100 million in cash. Imagine the dilution that would need to take place at $1.11 per share to pay down the debt? With 887 million shares outstanding, reducing LTD through a new equity offering at market price would send the stock into the basement. Even if they double the share count, this would reduce long term debt by 984 million or only 16%.
How about an asset sale, scaling down operations, and raising cash? Seemingly impossible, unless forced by creditors. They need the 4,700 stores to generate the roughly 25 billion in annual revenue to cover COGS and SG&A expense. In 2010 these items swallowed up all but 12 million in operating income.The most recent quarter interest expense was roughly 2.9x operating income 133 M vs 46 M.
In Walgreens most recent quarter they had 941 M in opearing income and no interest expense. CVS had 1.7 billion in operating income and no interest expense. Most revealing is CVS revenue number was 24 billion in the DEC 2010 quarter with 3.69 billion in SG&A while Rite Aid had 25.6 billion in revenue in 2010 with 6.81 billion in SG&A. Thats a 6.6% diff in rev and 84.5% increase in SG&A when comparing Rite Aid's 2010 to CVS most recent quarter!
Rite Aid is bleeding red and the numbers reveal no band-aid will heal their balance sheet.
Disclosure: I have no positon in RAD