Boston, MA 04/23/2014 (wallstreetpr) – Fitch has raised Rite Aid Corporation (NYSE:RAD)’s outlook to stable and has upgraded its Issuer Default Rating (IDR) rating from ‘B-‘ to ‘B’. The upgrade was due to improvement in operating results, credit profile and liquidity position.
Operating results
In FY2014, Rite Aid’s revenues improved due to increasing same store sales resulted from remodeling of stores and loyalty card programs. The increasing efficiencies of generic products and introduction of new generic along with same store sales has improved the gross margin as well as adjusted EBITDA. So, the Company posted an adjusted EBITDA of $1.3 billion during FY2014 that was in line with Fitch’s expectation at a range of $1.2 billion -$1.3 billion for next 12-24 months. Also, the EBITDA margin was 5.2% with an average prescription per store per week of ~1,240. Though the operating metrics are low compared to its competitors, but, the retailer sustains positive results.
Credit profile
Rite Aid Corporation (NYSE:RAD) has paid out its short-term obligations through a series of re-financing activities. It reduced its debt burden by ~$600 million in last 24 months and extended its long-term obligations to 2019 except 8.5% convertible notes of $64 million and the revolver which are due in 2015 and 2018 respectively.
Liquidity position
As of March 1, 2014, the drug retailer has a cash balance of $183 million and ~$1.3 billion borrowing under credit facility with outstanding credit of $80 million. So, the retailer maintains its liquidity position within a range of $950 million-$1.3 billion in last three years.
Therefore, the leverage ratio such as adjusted debt/EBITDAR and EBITDAR/interest remains flat or witness a moderate increase in FY2014 compared to last year. Fitch expects the Company is yet to achieve adjusted debt/EBITDAR at a range of low-to-mid 5.0x to retain positive ratings.
But, Rite Aid Corporation (NYSE:RAD) maintains positive increase in EBITDA with increasing prescription and generic sales from its same stores that may generate enough cash to meet its obligations in the future.
