Rite Aid Reports Fiscal Year 2009 Second Quarter Net Loss Per Diluted Share of $0.27 and Adjusted EBITDA of $215.3 Million

Rite Aid Corporation (NYSE: RAD) today reported revenues of $6.50 billion and a net loss of $222.0 million or $0.27 per diluted share for its fiscal second quarter ended August 30, 2008. Solid front-end and pharmacy sales in core Rite Aid stores were offset by the expected decrease in sales at acquired stores. All results and comparisons include the Brooks Eckerd stores and distribution centers, which the company acquired on June 4, 2007.

Second Quarter Highlights

• Overall same store sales increased 0.6 percent year-over-year due to solid performance in core stores.
• Same store sales in Brooks Eckerd stores continued to show progress, narrowing to a decline of 4.1 percent from the year-ago period versus 6.7 percent in the first quarter.
• Front end same store sales in the acquired stores turned positive for the month of August.
• Company generated positive cash flow of $96.1 million from operations.
• Liquidity strengthened by $700 million refinancing and increased sale and leaseback transactions.

"In this tough retail environment, our core stores delivered solid performance, we made significant progress building our acquired stores’ front-end sales, we took steps to increase our financial flexibility and we largely completed the integration of Brooks Eckerd. We also improved our gross profit rate in spite of what has turned out to be a heavily promotional environment in pharmacy as well as front end,” said Mary Sammons, Rite Aid chairman, president and CEO.

"While improving the acquired stores’ pharmacy business will take longer than originally expected, we are encouraged by the trends we’re seeing in these stores and the initiatives we have in place to grow prescriptions, even in today’s low growth environment. The stores look great, our associates are upbeat and customers we lost during the disruption of the integration are starting to return. With the Brooks Eckerd integration completed in just a few days, we will be in a better position to more fully realize the strategic benefits of the acquisition,” Sammons said.

Actions to Further Reduce Costs and Improve Cash Flows

The company also announced a series of actions to further reduce costs and improve cash flows in the second half of its fiscal year. These actions include:

• Reducing operating expenses through improved efficiency
• Cutting capital expenditures by approximately $50 million and
• Pursuing additional sale and leaseback transactions.

"The increasingly challenging economic environment underscores the importance of managing our business prudently, while maintaining our commitment to delivering the high level of service our customers expect. Moving forward, we are taking additional steps to reduce costs to further strengthen our financial position and build on the steps we have taken to improve working capital, which is already delivering results,” Sammons said.

The company said it expects to use free cash flow to reduce the outstanding balance on its revolving credit facility at the end of fiscal 2009.

Second Quarter Summary

Revenues for the 13-week second quarter were $6.50 billion versus revenues of $6.57 billion in the prior year second quarter. Revenues decreased 1.1 percent, primarily as a result of the decline in sales at the Brooks Eckerd stores and the impact from closing underperforming stores and combining stores in close proximity.

Same store sales for the quarter increased 0.6 percent over the prior year 13-week period, consisting of a 1.9 percent increase in the front end and flat same store sales in the pharmacy. Pharmacy sales included an approximate 264 basis point negative impact from new generic introductions. The number of prescriptions filled decreased 1.7 percent, negatively impacted by the acquired stores. The number of prescriptions filled increased in core Rite Aid stores. Prescription sales accounted for 66.9 percent of total sales, and third party prescription sales represented 96.4 percent of pharmacy sales.

Excluding the acquired Brooks Eckerd stores, same stores sales for the 13-week second quarter increased 3.1 percent over the prior-year period with front end increasing 3.6 percent and pharmacy growing 2.8 percent.

At the Brooks Eckerd stores, same store sales for the 13-week second quarter decreased 4.1 percent over the prior-year period, an improvement over the first quarter’s decrease of 7.2 percent. Front end decreased 2.7 percent in the second quarter but turned positive for the month of August. Pharmacy decreased 4.6 percent in the second quarter.

Net loss for the second quarter was $222.0 million or $.27 per diluted share compared to last year’s second quarter net loss of $69.6 million or $.10 per diluted share. The net loss included the expected expense of $36.2 million from the refinancing in the second quarter and expected income tax expense of $5.3 million compared to an income tax benefit in the prior year’s second quarter. Also contributing to the net loss was a decrease in adjusted EBITDA of $46.2 million, an increase in store closing and impairment charges of $35.2 million and an increase in depreciation and amortization expense of $18.4 million.

Adjusted EBITDA was $215.3 million or 3.3 percent of revenues for the second quarter compared to $261.5 million or 4.0 percent of revenues for the like period last year. An increase in gross profit rate was not enough to offset the sales decline and related lost gross profit in the Brooks Eckerd stores, and an increase in expenses. Expenses as a percent of revenues were higher, primarily due to expected occupancy expenses related to both the company’s new and relocated store program and sale and leaseback transactions, and an increase in wage and benefits expense.

In the second quarter, the company opened 8 stores, relocated 17 stores, acquired 1 store, remodeled 22 stores and closed 83 stores. Most of the stores that were closed were the result of the stores’ performance. Combining acquired stores in close proximity to existing stores accounted for 26 of the closed stores. Stores in operation at the end of the second quarter totaled 4,930.

During the quarter, the company also completed an approximately $700 million refinancing to fund the retirement of several notes that had restricted the company’s ability to borrow the full availability of its $1.75 billion revolving credit facility.

Company Revises Fiscal 2009 Guidance

Based on current sales trends, a longer-than-expected turnaround of Brooks Eckerd pharmacy sales, economists’ forecasts for continued weakness in the economy, the closing of underperforming stores and the company’s planned cost reductions for the remainder of its fiscal year, Rite Aid has revised its fiscal 2009 guidance.

Sales are expected to be between $26.0 billion and $26.5 billion in fiscal 2009 with same store sales expected to improve 1.5 percent to 3.0 percent over fiscal 2008. Adjusted EBITDA is expected to be between $950 million and $1.025 billion. Net loss for fiscal 2009 is expected to be between $445 million and $535 million or a loss per diluted share of $.56 to $.67. Capital expenditures, excluding proceeds from sale and leaseback transactions, are expected to be approximately $550 million. Proceeds from sale and leaseback transaction are expected to be approximately $200 million. (See attached chart for previous guidance).

Conference Call Broadcast

Rite Aid will hold an analyst call at 8:30 a.m. Eastern Time today with remarks by Rite Aid's management team. The call will be simulcast via the internet and can be accessed through the websites www.riteaid.com in the conference call section of investor information and www.StreetEvents.com. A playback of the call will be available on both sites starting at 2 p.m. Eastern Time today. A playback of the call will also be available by telephone for 48 hours beginning at 12 p.m. Eastern Time today until 12 p.m. Eastern Time on September 27. The playback number is 1-800-642-1687 from within the U.S. and Canada or 1-706-645-9291 from outside the U.S. and Canada with the eight-digit reservation number 63877888.

Rite Aid Corporation is one of the nation’s leading drugstore chains with more than 4,900 stores in 31 states and the District of Columbia. Information about Rite Aid, including corporate background and press releases, is available through the company’s website at http://www.riteaid.com.

This press release contains forward-looking statements, including guidance, which are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially from those expressed or implied in such forward-looking statements include our high level of indebtedness; our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our senior secured credit facility and other debt agreements; our ability to improve the operating performance of our stores in accordance with our long term strategy, our ability to realize the benefits of the Brooks Eckerd acquisition, including positive same store sales growth for Brooks Eckerd and cost savings; our ability to hire and retain pharmacists and other store personnel; the efforts of private and public third-party payors to reduce prescription drug reimbursements and encourage mail order; competitive pricing pressures, including aggressive promotional activity from our competitors; our ability to manage expenses, including integration expenses; our ability to realize the benefits from actions to further reduce costs and investment in working capital; continued consolidation of the drugstore industry; changes in state or federal legislation or regulations; the outcome of lawsuits and governmental investigations; general economic conditions and inflation and interest rate movements and access to capital, including our continuing ability to complete sale and leaseback transactions. Consequently, all of the forward-looking statements made in this press release, including our guidance, are qualified by these and other factors, risks and uncertainties. Readers are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission. Forward-looking statements can be identified through the use of words such as "may", "will", "intend", "plan", "project", "expect", "anticipate", "could", "should", "would", "believe", "estimate", "contemplate", and "possible".

See the attached table for a reconciliation of a non-GAAP financial measure, Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure. We define Adjusted EBITDA as net income (loss) from operations excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments, charges or credits for store closing and impairment, inventory write-downs related to closed stores, stock-based compensation expense, debt modifications and retirements, sale of assets and investments and other non-recurring items. We reference this non-GAAP financial measure frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods and external comparisons to competitors’ historical operating performance. In addition, incentive compensation is based on Adjusted EBITDA and we base our forward-looking estimates on Adjusted EBITDA to facilitate quantification of planned business activities and enhance subsequent follow-up with comparisons of actual to planned Adjusted EBITDA. We include this non-GAAP financial measure in our earnings announcement in order to provide transparency to our investors and enable investors to better compare our operating performance with the operating performance of our competitors.