On Sept. 27, convenience store and pharmacy operator Rite Aid (NYSE:RAD) released second-quarter 2008 earnings for the period ended Sept. 1, 2007.

  • Despite peaked sales, the company's recent remedy of adding new brand-name stores to its portfolio didn't seem to trickle to the bottom line.
  • The company improved the gross margin through controlled expenses, but the operating and net margin fell. However, management feels it is already seeing more cost-saving synergies from the acquisition than predicted.
  • The acquisition has significantly increased the debt load, and as a result, the company is facing higher interest expenses.
  • Rite Aid is fighting hard to keep pace with Walgreen (NYSE:WAG) and CVS (NYSE:CVS), the top two convenience store operators in America. But our CAPS community still gives this stock the lowest mark of the threesome. Fair? Unfair? Weigh in with your insights right here.

(Figures in millions, except per-share data)

Income Statement Highlights

Q2 2008

Q2 2007

Change

Sales

$6,599

$4,288

53.9%

Net Profit

($69.6)

($0.3)

N/A

EPS

($0.10)

($0.02)

N/A

Diluted Shares

781.8

523.4

49.4%

Get back to basics with the income statement.

Margin Checkup

Q2 2008

Q2 2007

Change*

Gross Margin

27.2%

26.8%

0.4

Operating Margin

0.7%

1.6%

(0.9)

Net Margin

(1.1%)

(0%)

(1.0)
*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q2 2008

Q2 2007

Change

Cash + ST Invest.

$170

$97

76.3%

Accounts Rec.

$789

$353

123.7%

Inventory

$3,992

$2,424

64.7%

Liabilities

Q2 2008

Q2 2007

Change

Accounts Payable

$1,639

$932

75.8%

Long-Term Debt

$5,519

$2,300

140%

The balance sheet reflects the company's health.

Cash Flow Highlights

Q2 2008

Q2 2007

Change

Cash From Ops.

($139.6)

$16.1

N/A

Capital Expenditures

$162.2

$66.7

143.2%

Free Cash Flow

($301.8)

($50.5)

(497.2%)

Owner Earnings

($69.8)

$6.7

N/A

Free cash flow is a Fool's best friend.