Drugstore cowboy Rite Aid (NYSE: RAD) reports its fiscal Q2 2011 earnings results tomorrow morning. Will the news leave shareholders hogtied, or bucking for joy? Here are a few facts that I hope will help you make sense of tomorrow's announcement.

What analysts say:

  • Buy, sell, or waffle? Eight analysts follow Rite Aid, giving the stock a strong buy, a buy, four holds, an underperform, and a single sell.
  • Revenue. On average, analysts expect to see $6.21 billion in Q2 sales, down slightly from last year.
  • Earnings. Ha-ha. Far from earning anything, analysts tell us Rite Aid is much more likely to report $0.14 per share in losses tomorrow -- basically a repeat of last year's Q2 performance.

What management says
Drug stores are in the business of making people healthy -- but they also sell cosmetics that make people look better than they really are. When last we heard from Rite Aid, management was more focused on the latter activity, at least as regards its own performance. Reporting a $0.09 per share loss, management was quick to point out that this was less of a loss than it incurred in the previous year's Q1, and boasted of its continuing efforts to "improve operational efficiency."

What management does
But how has the company really been performing? See for yourself:

Margins

02/09

05/09

08/09

11/09

02/10

05/10

Gross

25.7%

27.2%

26.7%

26.5%

25.9%

26.8%

Operating

0.4%

1.0%

0.7%

1.3%

0.5%

1.4%

Net

(34.2%)

(1.5%)

(1.8%)

(1.3%)

(3.2%)

(1.2%)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says
Rite Aid's real problem is no big secret: It's absolutely hide-bound with debt. Against a market cap of under $930 million, this company carries well over $6.2 billion in debt, putting the company in a tenuous position as it competes with the essentially net-debt-free Walgreen (NYSE: WAG), and a less leveraged CVS Caremark (NYSE: CVS). While Rite Aid's management claims to have $1.2 billion in "liquidity" available to it, most of this is in the form of lenders offering it more cash to help stave off bankruptcy.

Result: Rite Aid's constantly trying to shuffle its debts around, to keep the bill collectors at bay. Last month, it took out $650 million in loans to pay off other loans that were coming due in 2015. The problem here is -- even new debt comes at a price. While companies with strong balance sheets are taking advantage of the low cost of corporate debt these days (IBM (NYSE: IBM) recently snagged $1.5 billion  at a nominal 1% interest rate), Rite Aid has to ante up 8% to convince anyone to hold its paper.

So … what do we look for tomorrow? What news would qualify as good? Proof that the company's paying off its creditors would be a good start.

The Fool owns shares of IBM, but Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

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