Back in the early '90s, when I lived in an adorable little neighborhood on Manhattan's Upper West Side, I could see that selling drugs was a darn good business. I'm not talking about the illegal, illicit stuff -- I'm talking about the streets of New York, which were populated by more drugstores than rats.
A quick check shows that there are no less than six Rite Aid (NYSE:RAD) stores within a mile of my old grad-school hovel. That's because the firm has been closing stores in an effort to slim down, and the policy is paying off, as shown in the results released this morning.
For the fourth quarter, revenues were up 6.2% to $4.4 billion, and earnings of $0.09 per share look a lot better than the $0.02 loss in the prior-year period. The numbers were similar for the year as a whole: Sales up 5.1% to $16.6 billion, and earnings at $0.11 per stub versus a $0.28 loss the previous year.
What's the secret of that success? Good old-fashioned comps growth -- 6.4% for the quarter and 5.7% for the year -- plus, much lower expenses for shuttering non-performing locations. Apparently, Rite Aid sees no crime in being small, which is a good thing considering that rival CVS (NYSE:CVS) will be as huge as onetime heavyweight champ Walgreen (NYSE:WAG) after it gobbles its share of the Eckerd chain.
Rite Aid looks like it's recovered from some pretty groggy times, but it's got $3.4 billion in debt on the books, which chews up more than $300 million a year in interest. And investors will want to keep an eye on the expense for stock-based compensation. At $30 million, it grew six times over the prior year.
Guidance for around $135 million in net income for the coming year would represent 63% growth over the latest year's figures, and might help soothe investors spooked by the price-to-earnings ratio of 55 at today's $5.55 per share. It might even look downright cheap compared to Walgreen, which is valued at a P/E of 25 yet is growing earnings at a tamer 15%.
Discuss the drugstore world's big fish in the Fool's Walgreen discussion board.
Fool contributor Seth Jayson owns no stake in any firm mentioned above. View his Fool profile here.
