<BREAKFAST WITH THE FOOL>

Tuesday, June 15, 1999

"I am not young enough to know everything." -- Oscar Wilde

Latest Market Numbers

Rite Aid on the Rite Track?

Is the ship being righted at drugstore operator Rite Aid Corp. (NYSE: RAD)? The company came under heavy fire three months ago after reporting disappointing fiscal Q4 earnings that underperformed even the company's own earnings warning issued earlier that month.

Last night, Rite Aid turned in Q1 earnings that did a tango of sorts -- a step forward, a step back. Same-store sales improved 10% overall for the quarter, while revenues were up 19.5%. Earnings per share, at $0.31, were a penny better than the year-ago mark and a penny below IBES' 14-analyst consensus estimate.

One piece of data to watch is that prescription revenue -- notably, lower-margin third-party prescription revenue -- grew as a percentage of sales for the quarter. With third-party sales, accounting for 87.1% of total pharmacy sales, up from 84.6% last year and prescription sales as a whole increasing to 58.2% of drugstore revenues from 53.5%, it appears that front-end non-drug sales growth is slowing.

Following the earnings news, Standard & Poor's lowered Rite Aid Corp.'s long-term corporate credit, senior unsecured, and bank loan ratings to "triple-B" from "triple-B-plus" and its subordinated debt rating for the company to "triple-B-minus" from "triple-B."

S&P said the downgrades are due to diminished debt service coverage numbers driven by weak operating results, as well as the company's increased financial leverage due to the debt-funded acquisition of PCS Health Systems Inc. S&P expects a few more quarters to pass before Rite Aid works through its development issues.

By then, the company will likely be without one of its most-familiar executive names. Company veteran and CFO Frank Bergonzi, who spent 29 years with Rite Aid, said he intends to retire in the fall.

News to Go

Diversified energy company Avista Corp. (NYSE: AVA) said it expects Q2 EPS to come in below the market's current $0.33 consensus estimate. Chairman and CEO T.M. Matthews, who said first-half results have been hurt by weak national energy prices and unfavorable weather in the Northwest, said he expects positive results for the balance of 1999.

Aircraft maker Boeing (NYSE: BA) expects orders from Asian airlines to hit a low point in 2000 before taking off, according to reports. Boeing Japan President Rick Martin said at a Tokyo press conference that sales, hurt by delayed or canceled orders, are unlikely to rebound in the short term. That should begin to change in 2001 as air travel booms in the Asia-Pacific region.

Vitamins and nutritional supplements maker Rexall Sundown (Nasdaq: RXSD) believes fiscal Q4 revenues will fall from Q3 levels because sales of Cellasene, a natural "cellulite buster," will be hurt by "the significant pipeline distribution which occurred in the third quarter." Q3 EPS was $0.28, up from $0.26 last year but $0.04 short of IBES' four-analyst prediction, as sales increased 13% to $171.2 million.

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Dave Marino-Nachison (TMF Braden), Writer
Jennifer Silber (TMF Amused), Editor