Rite Aid Profits and Loses

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Jun 26, 2002
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Rite Aid Corp. posted its first quarterly profit for the three months ended June 1 in at least four years, due to a hefty tax benefit, sharply lower interest expense and higher prescription sales, reports Reuters. Simultaneously, the drug store chain continues its 16-quarter losing streak, according to the same financial report. The contradictory figures are consistent with U.S. accounting standards, says Wayne Kaplan, a partner in the audit department in the Philadelphia office of Grant Thornton L.L.P., a national accounting firm.

Quarterly sales at Rite Aid’s 3,600 stores rose to $3.9 billion from $3.7 billion a year earlier, adding an income-tax benefit of $44 million and subtracting $20 million in expenses for a federal investigation of its former management’s accounting practices. In its profit statement, Rite Aid reported net income of $2.6 million for the quarter – up from a $211 million loss in the same period last year.

The net income total excludes a $7.2 million payment to preferred-stock shareholders as part of an equation in a footnote at the end of the report. The footnote explains why Rite Aid also lost a penny a share during the quarter, compared with a 56-cent loss for the earlier period.

Moderator Comment: Did Rite Aid make a mistake in
how it accounted for payments made to preferred-stock shareholders?

You would think that just to avoid the appearance of
any slight of hand accounting acts, Rite Aid would have reported that its net
income total excluded the $7.2 million payment to the company’s preferred-stock
shareholders. This is the first big mistake that we’ve seen the chain make since
Robert Miller took charge.

The good news is that Mr. Miller’s reputation is as a person
of integrity. We do not foresee any

type of scandals coming to Rite Aid. Mr. Miller foresees further losses for
this year with the company posting profits beginning in 2003. [George
Anderson – Moderator
]

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