Rite Aid Corp (RAD) 2005 Q1 法說會逐字稿

Good morning, my name is Andrea, I will be your conference facilitator today. At this time, I'd like to welcome everyone to the Rite Aid first quarter fiscal 2005 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. If you would like to ask a question during this time simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question press the pound key. Thank you. Mr. Standley, you may begin your conference.

Thank you, operator. Welcome to our first quarter conference call. On the call today with me are Mary Sammons, our Chief Executive Officer, Kevin Twomey, our Chief Accounting Officer. Before we begin today I'd like to read the following regarding forward-looking statements. During today's call forward-looking statements may be made. Such statements 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 to satisfy the other covenants contained in our senior credit facility and other debt agreements.

Our ability to improve the operating performance of our existing stores in accordance with management's long-term strategy. Our ability to hire and retain pharmacists and other store personnel, the outcomes of pending lawsuits and governmental investigations, competitive pricing pressures, continued consolidation of the drugstore industry, the efforts of third party payers to reduce prescription drug reimbursements, changes in state or federal legislation or regulations, the success of planned advertising and merchandising strategies, general economic conditions and inflation, interest rate movements, access to capital and our relationship with our suppliers. Consequently, all of the forward-looking statements made during this call are qualified by these and other factors, risks and uncertainties.

Also during today's call non-GAAP financial measures are mentioned. The definition and purpose for these measures are described in the form 8K we furnished the SEC this morning. The form 8K can be accessed through our website under the Our Company and Investor Info tabs. You're also directed to consider other risks and uncertainties discussed in documents we file with the Securities and Exchange Commission. Our agenda for today's call will be as follows: Mary Sammons will give an overview of first quarter operations, I will review the first quarter financial results and comment on our fiscal 2005 guidance and then we will take questions.

Mary?

Thanks, John, and thank you, everyone, for joining us today. The first quarter was another great quarter for Rite Aid as once again we substantially improved our operating and financial performance. We reported the highest adjusted EBITDA in terms of dollars and as a percent of sales since we began to rebuild our company four years ago. And the 27.8% increase in adjusted EBITDA contributed to another profitable quarter with net income of 63.3 million or 10 cents per diluted share. Contributing to our success is the great job our team did in leveraging a 5.3% increase in same store sales by continuing to improve gross margin and hold the line on costs even as we continue to invest in our business.

Our focus on improving productivity in existing stores is definitely working and thanks to the efforts of our California store associates we've kept many of the customers and scripts we picked up during the west coast grocery strike, positively impacting both pharmacy and the front end and leading to market share gains. Pharmacy same store sales increased 5.4% with pharmacy gross margin up over last year due to higher sales, particularly of generics, and overall purchasing improvement. New generic stamp and comps by 83 basis points as our generic prescription dispense rate continued to be one of the highest in the industry. Non sedating antihistamines and hormone replacement therapy, again, trended down and weaker cough and cold than last year also had an impact.

We continue to feel the negative effect of challenges to the drugstore sector as a whole, such as tiered and higher co-pays, reduced Medicaid reimbursement and recipients, illegal importation and mail order growth. Several mandatory mail programs negatively affected script counts throughout the quarter with United Auto Workers having the greatest impact. We continue to work with PBMs and health plans to offer alternatives to mandatory mail and to promote medication therapy and disease state management by our pharmacists as a means to better reduce overall healthcare costs. Despite these challenges, we had a strong, profitable quarter and we remain confident in the long-term prospects for our industry. We believe that trends such as an aging population, new drugs with block buster potential, the recent increase in R&D expense from major drugmakers and the numbers of new generics expected to come to market coupled with our focus on being an active player in healthcare will more than offset these challenges in the long run.

Our pharmacy initiatives during the quarter once again included aggressively purchasing file buys We see a healthy pipeline as the issues challenging the industry as a whole give us more opportunities to gain new customers for our business. We continue to rollout technology that improve work flow and enhance customer service. Our new next gen pharmacy dispensing system is now operating in almost 800 stores with chain wide training already underway. We also added more e-prescribing capabilities with nearly 60% of our stores now able to electronically connect to doctor's offices. As part of our focus on improving customer satisfaction, our voice response customer satisfaction survey was rolled out to all stores during the quarter so now we can hear what our pharmacy customers think of their experience at Rite Aid.

The results are available to both supervisors and store personnel and will help us determine in which stores and in what areas we need to improve. This will be an ongoing program. Our managed care programs gained traction with progress made in positioning Rite Aid as a preferred choice in several networks. As part of our emphasis on disease state management, we implemented a diabetes solution center in all stores, which has been well-received by our customers. Our diabetes initiative and partnership with the American Diabetes Association has resulted in double-digit increases of diabetes-related diagnostics and medications.

We believe that disease state management programs like this, which promote our ability to care for our customers health and wellbeing, will help position our pharmacists as critical components of the healthcare system. We will give this area even greater focus in the months ahead. Also included in our pharmacy initiatives this quarter was the rollout of our marketing program to promote the Medicare approved prescription discount cards, which you've heard so much about. We provide a personal advice kit to help our senior patients decide which card is best for them and our pharmacists are trained to answer their questions. To date enrollment has been slow for the industry. On the front end, same store sales increased 5.2% with customer count, transaction size and gross profit dollars all up.

Continued strong assortments in promotions, new items, off shelf programs and excellent store execution of corporate and local programs all contributed to the increase. So did outstanding private brand sales which exceeded even our expectations with penetration up 80 basis points. We launched 45 new SKUs in the quarter and have 134 new items on our project list for launch later this year. Sales increased almost across the board with core drugstore solids, overall HBC having nice gains and seasonal up partly due to the strong Easter and Mother's Day. Consumables were outstanding. According to Rite Aid market data from AC Nielsen, we increased market share in all major segments of our business, beauty, health, general merchandise, seasonal and consumables.

Diagnostic, diabetic and home healthcare were the leaders in our health business with ethnic hair care, skin care and sun care all having nice gains in market share. While photo film and photofinishing remain difficult, we expanded our digital capabilities so that nearly 40% of our stores have digital order stations and 150 have digital labs. We will continue to add digital capability to our one-hour lab stores and expect to have all enabled by the third quarter. Our digital stores are outperforming traditional one-hour and we expect digital sales at retail to gain traction over the next 18 months as customers begin to understand the value and quality of retail digital development. We will also add some new dimensions to our photo department by offering photo restoration, crystal capture, photo plates and canvas prints.

All areas of our company did a good job of cost control in the quarter, resulting in improved SG&A expenses as a percent of sales. Inventory turns were slightly improved over last year. During the quarter we began construction on two pilot stores for our new store design which we expect to have ready for customer feedback sometime in the third quarter. The new design is customer centric, based on extensive research into what customers are looking for in a drugstore today. The design features our pharmacy and the layout reflects our commitment to the health and wellness aspect of pharmacy and front end. It also highlights the important draw of the beauty quadrant.

It is operationally efficient both front and back of the store with wider aisles as well as more linear footage. It's about 25% larger than the current prototype and most importantly it's a design we believe will differentiate us from the competition as it attracts customers. The new design reflects our With Us It's a Personal Promise. As you may remember, from our last conference call, we launched our new fiscal year with an increased emphasis on our commitment to deliver superior customer satisfaction to every customer who walks through our door, especially in the pharmacy. That message continued to be reinforced during the first quarter in our print circulars, in-store point of sale and health brochures. In August, we will take our With Us It's Personal message to TV with both national and spot advertising in 33 markets that represent 74% of our pharmacy sales and outdoor will be added to selected markets.

In closing, I want to make a few comments about the updates in our guidance. You will see that we raised our net income guidance, confirmed adjusted EBITDA projections and slightly lowered sales expectations. As I said earlier, the industry faces certain challenges which we believe will continue to impact our business in the short-term. Our revised sales guidance also reflects our expectation of dispensing more generic prescriptions than we had originally estimated. Our adjusted EBITDA estimates remain unchanged because even with these challenges our first quarter results are evidence of our ability to leverage sales increases by improving margins and good cost control and we feel good about the programs and initiatives our team has put together for the quarter and year ahead.

Now I'll turn it over to John.

Thanks, Mary. Overall we're very pleased with our first quarter results. Total revenues for the 13 week first quarter were 4.24 billion this year versus 4.05 billion last year. Revenues increased 198.2 million or 4.9% this year versus last year. We operated 3,374 retail stores at quarter end versus 3,396 stores at the end of last year's quarter, a net reduction of 22 stores or 65 basis points. Same store sales for the quarter were up 5.3% with pharmacy comparable store sales up 5.4% and front end comparable store sales up 5.2%.

Pharmacy comparable store sales were positively impacted by inflation and a switch in the timing of Memorial Day, which is a low volume pharmacy day, from the first quarter last year to the second quarter this year. The positive impact in the first quarter from Memorial Day shift will have a negative impact on the June and second quarter comparable store sales in pharmacy. Pharmacy comparable store sales were negatively impacted in the first quarter by 83 basis points due to an increase in new generic sales and a slight decrease in prescriptions filled resulting from a weaker cold and flu season in the first quarter compared to last year, the introduction of the mandatory mail and certain benefit plans and a reduction in hormone therapy prescriptions.

Although increases in generic sales negatively impact comp store sales they increase gross margins. Prescription sales accounted for 64.6% of total sales and third party prescriptions represented 93.7% of total pharmacy sales. Front end comparable store sales were positively impacted by improvements in almost all of our core categories. Gross margins, which are net of occupancy costs, were 1.1 billion or 24.8% of revenues for the first quarter this year versus 978 million or 24.2% of revenues last year. Current quarter included a noncash LIFO charge of 10.7 million and the prior year's first quarter included a LIFO charge of 15 million. Excluding LIFO charges, the first quarter gross margins were 25.1% of revenues compared to 24.5% of revenues last year, an increase of 51 basis points.

FIFO gross margin was positively impacted by increased pharmacy margin and continued leveraging of the occupancy and depreciation and amortization expenses included in gross profit. Pharmacy margins were positively impacted by reduced inventory cost resulting from purchasing improvements and more generic scripts as a percent of the total scripts partially offset by lower reimbursement rates. Front end margin decreased slightly in the quarter because of reduced margin in the photo category. Selling, general and administrative expenses for the quarter decreased as a percent of revenues by 58 basis points compared to the prior year. This is improvement is a result of good cost control in our stores, distribution centers and the corporate office and lower depreciation and amortization expense resulting from certain intangible assets becoming fully amortized.

Noncash stock based compensation expense was 4 million this year versus 9.8 million in the prior year. We expensed a fair value of stock options granted. The decrease in expense from last year's first quarter is due to the options granted in earlier years becoming fully vested. Store closing and impairment costs were a credit of 4.6 million this year but an expense of 6.4 million in last year's first quarter. A component of the cost is interest and the swing in amounts are primarily due to changes in the treasury interest rates. Interest expense was 77.8 million for the first quarter versus 78.9 million in last year's first quarter. Cash interest expense was 72.1 million this year and was unchanged from last year and noncash interest was 5.7 million this year versus 6.8 million last year. Noncash interest is lower than in the prior year because of lower debt issue cost amortization. Adjusted EBITDA for the first quarter was 223.7 million or 5.3% of revenues, an increase of 48.6 million over the prior year computed on a consistent basis. The schedule attached to our press release reconciles our net income to our adjusted EBITDA total. Net income for the quarter was 63.3 million or net income of 10 cents per diluted share compared to a net loss of 38.8 million or net loss per diluted share of 8 cents. The net income per share for the current fiscal quarter includes 8.3 million of declared preferred stock dividends that are not included in net income. The prior year's first quarter did not have a declared preferred dividend.

Liquidity remained strong during the quarter. Cash on the balance sheet at the end of the quarter was $500 million. Operations generated 217 million of cash during the quarter, primarily due to strong adjusted EBITDA , a decrease in accounts receivable, a receipt of income tax refunds and an increase in accounts payable. Expenditures for property, plants and equipment were 35.1million and we acquired $6.7 million of script files for a total of 41.8 million of capital expenditures. During the quarter, we acquired a store, remodeled 48 stores, relocated 3 stores and closed 9 stores. A couple of comments on our guidance for fiscal 2005. Based on the first quarter results and current trends we are confirming our adjusted EBITDA guidance for fiscal 2005 of 800 million to 850 million. However, we are raising our net income guidance to be between 121 million and 167 million to reflect some fine-tuning of our tax expenses and noncash stock compensation.

We are lowering our sales estimates to be between 17.2 billion and 17.4 billion and lowering our same store sales growth estimates to 4.5% to 5.5%. Attached to our press release is a table that reconciles our adjusted EBITDA guidance to our guidance for GAAP earnings. For calculating EPS on a full year basis, you should start with 517 million weighted average shares outstanding, add 18.8 million shares of common stock equivalents for stock options and reduce net income by $34.5 million for cumulative preferred stock dividends. Although we have done an excellent job building our store development pipeline, we now estimate that 35 to 45 new or relocated stores will be open this year but we are on tract towards 100 plus stores for next year. In addition we're seeing a larger proportion of turn key or developer financed deals than we originally anticipated. Accordingly we are lowering our capital expenditure guidance to 275 million to 325 million for this fiscal year.

Operator, we are now ready to take questions.

At this time I'd like to remind everyone, in order to ask a question, please press star then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from John Heinbockel with Goldman Sachs.

A couple of questions. In your comp guidance for the rest of the year, what do you think the general breakdown will be between pharmacy and front end? Will they continue to be roughly the same or do you think there will be some split in the performance?

John, we don't normally break it out by segment in terms of how that contest been forecasted.

I think we've talked about it before, we do have some tougher front end comps later in the year, but otherwise, yeah, we give you the broad guidance.

I guess what I'm getting at is because of that tough comparison does the pharmacy have to re-accelerate to hit those numbers or no it doesn't really have to?

I think we've done a really good job of taking into account everything that we know and forecasting that overall sales number.

Okay. Now, in the EBITDA growth portion, if I look at your forecast, particularly the high end of the range, the rest of the year, obviously you're not going to sustain 20% plus but even at the high end of the range there's a fairly noticeable drop from what we saw in the first quarter. What was sort of not sustainable in first quarter margin, if you want to break it out gross and/or SG&A, what may not have been sustainable as we move to the second, third and fourth? Or are you simply being conservative and there is some upside to your forecast?

I think we've looked at the guidance pretty carefully, John, and we've also given consideration to current sales trends that are reflected now in our revised sales guidance and we've baked all of that together. I think we've tried to call out in the call those items in the current quarter results that we think are significant, but overall this is pretty much a run rate number. The adjusted EBITDA number of 223 represents solid cash quality earnings number. It's not that there's some kind of one-time gain in there. There is some movement in sales between the first quarter this year versus last year in the second quarter because of the change in the Memorial Day timing. So, that's a little bit impactful, but overall I think we're looking at the broader trends, we're looking at some modest reimbursement rate issues, we're looking at our sales trends and we feel good about where the guidance is, I think.

All right and just two final things. What's the update on Medical and how many files did you buy during the quarter? And what are you thinking for the year?

Well, as far as MediCal goes, discussions are still going on there. We have worked very diligently with the state and with both finance department and the Medicaid budget department, both as an individual company and along with any CDF and so they are considering the options that we have put out there. And we have taken into account impacts from what we expect could happen there.

Okay, what about the file buys.

File buys we completed 23 this quarter so we were about on our plan for the quarter and feel good about the number we established for this year's goal.

What was that again?

And we feel good about the number that we established as this year's goal for our team.

Okay, thanks.

Your next question comes from Jack Murphy with CSFB.

Good morning.

Hi, Jack.

Good morning, Jack.

A couple of questions. First on Southern California. I think you said you -- maybe 125, 150 basis points last quarter. What about this quarter? And how do you see the front end business trending there?

I think we mentioned that we feel really good about our southern Cal stores hanging on to a lot of the customers and scripts that they picked up during that grocery strike and we're still pleased with their overall sales trends. I think we may have given a little for the guidance in the fourth quarter.

In the fourth quarter, right.

Right. I think, John, you made a comment about photo as it related to the front end that your front end margins were down due to photo. I wonder if you could get into that a little bit and kind of help us with the mix shift there and when you look at digital versus the traditional photo processing business or film sales, is the margins meaningfully different? Or could you just kind of explain that a little more?

I'm not sure I can, Mary can probably help me a little bit. I will back you up just a second, though. In terms of front end margins, they are down very modestly, like a few basis points. They're pretty flat and the only trend I really saw in that regard was photo, which was down slightly. And I don't know, Mary, if you can elaborate a little bit on the margins.

As far as the photo goes, this is an investment time period for us and as we are rolling out our digital equipment and capability we've got to get that message in front of the customer so we are making and will continue to make investment and communicating and promoting in that area because we think that's what we need to do to really bring more customers in to understand the value of doing the digital development at retail.

Okay. Last question is just on the mandatory mail, you've mentioned that it is costing you something and the pharmacy. Would you be willing to say how much in basis points you think that impacted the quarter in the pharmacy? And then secondly, if you could just give us your thoughts on your stance in general on mandatory mail given other competitors' stance to not take any new plans with the mandatory mail provision.

In terms of the effect on the sales, we have not given specific impact, although we look at it by store and market area because we obviously have that information. So, certain parts of our country are affected more than others and I mentioned central division had the most impact from mandatory mail programs. And in terms of our position on plans that have mandatory mail components, there have been a lot of those plans out there for the last several years and we still believe it's important to evaluate a plan by plan and we work very hard with CBMs to offer other alternatives and we're going to continue to do that, but we still evaluate it plan by plan in terms of economic value overall to our business.

Okay, thank you.

Your next question comes from Mark Husson with Merrill Lynch.

Yes, good morning. A couple of questions. Firstly on the Medicare card. Could you say which card you're actually actively promoting, if any? And overall in terms of the rather disappointing sign up, are there any sort of volume or margin implications you can talk about at this stage?

In terms of what we promote, in the personal advice kit that we give out we really have information on three cards. Two of which are private, branded cards where we co-brand the card with the plan sponsor and then the other card is the one offered through the NACDS program, the Pharmacy Care Alliance card. We think those three offers are all good values for the customer to consider. But we are accepting almost any of the card programs out there. I think in terms of financial impact, you got to remember what you're doing is moving what was a cash sale and even if with the senior discount of about 10%, under the program you're going more to an average sort of third party rate, maybe slightly lower reimbursement, like an AWP minus 13. So, it's going to have some impact relative to margin. But, so far the effect on overall margin contribution has been pretty small because the sign ups have been pretty small.

Is there any evidence that people pick up more prescriptions when they've got these cards?

I don't think we know that, yet, and I think we need to kind of watch over the next couple of months to see if the sign ups accelerate because seniors were really told to take a little bit of time and consider what might be the best alternative because once they sign up they have to keep that card for the rest of the year. I think there was some slowness in some of the card offers to get the cards out to patients. So I think we will have more data on that in the next couple of months.

Okay.

We would expect that if it's successful you should see more prescriptions per senior patient.

Right. The other thing is that SG&A performance was pretty good considering the sales are probably below where you thought they were going to be a quarter ago. Can you just walk us through that? You put some programs in place to make sure customer service levels were heightened. Are you still scoring well on those customer service levels or is that a casualty of SG&A control?

No, we feel really very positive and good about our peoples' performance on the customer satisfaction score cards. We continue to do our benchmark survey. We've improved year-over-year. We measure it corporately and down to the region level. We just added an investment in a customer voice response survey so that we can get a specific store information on customer's pharmacy experience. I think we just have done a really good job of using our staff work's scheduling tool to make sure that we've got the associates there when the customers are there and we'll continue to do that. We have to focus on improvements in helping our stores be more productive with less hours and we also have done many things in that respect, too.

So, it's a labor scheduling lever that is working on the SG&A line?

Yes and it's allowing us to meet our expectations by customer service but to also manage the expense.

There is also an element of depreciation and amortization, Mark,there.

And there's other controllable expenses. I guess I'd say two things. One is labor dollars year-over-year are not going down, but sales are growing faster than we are adding labor at the moment. So, we get some leverage out of labor but we've done a great job in other controllable expenses, we have not added a lot of administrative costs over the last year. Sales have grown. We've reduced a lot of individual items using the Internet bidding and all kinds of stuff. So, we're trying to tackle a lot of different areas on the SG&A side to try and keep costs under control.

Service does seems to be a night and day compared to two years ago. It's noticeably much better.

We're getting there.

Thank you.

And then finally, a rather esoteric question, in terms of the e-prescribing you're rolling it out so it's, obviously, having some kind of an effect. Can you just say which platform are you using, are you using pocket scripts or all scripts?

Most of it is through ProxyMed ensure script. It's still a small percentage of what you do, but if it gets any traction through the whole Medicare program that kicks off in 2006, I think you are going to see a lot more doctors come on board. And that's really what it comes down to now, is getting more doctors to get on the system and it has lots of benefits and cost savings once that happens.

Great, thank you very much.

Your next question comes from Jeff Cobalar with Solomon Brothers.

Just a couple of questions about your cash flow situation. Can you say what the income tax refund you got in the first quarter and what is your aligis(ph) for the rest of the year as far as cash taxes or cash refunds?

I think we received 37 million, Kevin, is that right?

36

36 million of cash tax refunds in the first quarter as we continue to go through the process to amend and resolve tax issues related to the past. In terms of cash taxes for the rest of the year, they're minimal and reflected in our guidance.

In our guidance.

Yeah.

And so it sounds like you're going to have a good amount of free cash flow after CapEx, maybe close to $200 million or so. Does that sound about right?

Yeah, I think you'd put in a modest increase in working capital in there. You need to consider closed stores, rent on closed stores is probably in the 40 to $45 million range.

Right.

So, factor those in as well besides cash interest and EBITDA. So, those are the factors I'd put into that equation, but we will have some free cash flow, yes.

All right, great. Thank you.

You're welcome.

Your next question comes from Edouard Aubin from Deutsche Banc.

Good morning, this is Dickson in for Edouard. Had a quick question. If you can clarify your new store program for this year. Previously you talked about 75 stores, a 50/50 split between relos and new.

Yes, it's still a 50/50 split. Basically we started from zero, we had virtually no pipeline when we started the program, so we've built a very robust pipeline that should help us meet our revised numbers for this year, but also more importantly get us toward that 100 store number for next year. So, we've done a very good job of building the pipeline, just takes a little bit of time to ramp up.

And that 35 to 45 new or relocated stores, is that going to be 50/50 between -- ?

Yeah, yeah.

Okay, so half of that would be new stores?

Roughly, that's right.

Are you still looking to hit your square footage growth, positive growth on square footage this year?

I think it's going to be pretty flat.

Okay. Should we expect a meaningful ramp up in say second half or how does it look?

Yeah, our new stores are heavily weighted toward the second half of the year as you would expect.

Okay, great, thank you.

You're welcome.

At this time, I would like to remind everyone, in order to ask a question please press star then the number 1 on your telephone keypad. Your next question comes from Luca Epilito from Chesapeake Partners.

We're Cheesecake Partners. Yes, congratulations. I also wanted to followup on the SG&A question that Mark asked and unfortunately I missed part of your answer, I apologize. Excellent performance at the SG&A line. How sustainable is that? I know that's been a big focus, but can you give me a little more color on that?

Well, it will continue to be one of the four critical priorities that we have established and have been working on this last year, year and a half. And I think we feel that we are doing a really good job of getting everyone on our team, looking at the areas of expense that they manage from distribution to stores to corporate and we do believe that it's sustainable. John, you want to add?

Yeah, I think the other factor's obviously sales volume. The more sales volume the better we are at leveraging the SG&A percent. So, as you look across our seasonality, first quarter and the fourth quarter tend to be our higher volume quarters and so you will see that SG&A as a percent of sales will be a little bit better in those quarters versus say like the second quarter. So, as a percent of sales it will move around some as you move across the year. Okay?

Thank you.

You're welcome.

Your next question comes from Ken Goldberg with Lidian.

Yes, hi, had two questions. One is can you talk about any impact from the Eckerd sale in any of your markets? And then secondly, can you talk about your strategy for the cash balance, which is accumulating?

I think I'll let you have the first half of that and I will take the second.

As far as the situation with Eckerd goes, I think we talked about this last call, too. We believe that there's always opportunity to gain new customers when there is a change and we are fully prepared and really in working with our stores to really treat any new customer opportunities and gain new customers for our business and we believe opportunities will be there.

In regards to the cash balance, obviously our balance sheet is strengthening as we continue to improve results. We're excited about that. We plan to opportunistically deploy our cash to improve our business and to de-leverage. We did purchase a small amount of bonds after quarter-end, about 26 -- 27 million of bonds after quarter-end. But again, we'll use the cash as it makes the most sense to improve our business.

Can you say which bonds?

We bought 7.125 of '07, January '07s.

Thank you.

You're welcome. Operator, any further questions?

Your next question comes from Steve Chick with JP Morgan Chase.

Hi, thanks.

Hi, Steve.

Hey. I guess on top of that, the Eckerd question, can you just remind us what percentage of your store base overlaps with Eckerd in, I guess, what you could say is significant fashion?

I don't know that I know the percent offhand but we definitely have overlap in the northeast and parts of central. So --

Probably 25, 30%, something like that.

Yeah, not as much as they overlap with some of our other major competitors. So certain markets have significant overlap.

Okay. And separately can you just remind me, are you doing anything with 90 day at retail?

We already do provide some 90 day at retail in our stores through certain contractual arrangements that we have made and it is something that we're going to continue to look at but we would evaluate it on a case by case basis and make sure that there was some economic reason for us to do it, too.

With 90 day at retail, can you speak about the economics a little bit relative to 30 day?

I think it can definitely have some negative impacts just in terms of you've got one co-pay versus multiple and generally speaking you're talking about a lower reimbursement. So, we really do look at it case by case but we believe that it's important for the industry to develop the capability to handle 90 day at retail and even though you may have a higher or a slightly higher co-pay that you would be able to, because of the other services and value you provide, manage to have customers want to choose that retail option because customers really would prefer to come into the store to get the script.

Okay, thanks.

At this time, there are no further questions. Mr. Standley, are there any further remarks?

No, we'd just thank everybody for joining us this morning. And again, we're very pleased about first quarter results. Thank you.

Thank you.

This concludes today's Rite Aid first quarter fiscal 2005 conference call. You may now disconnect.