October 10, 2008
Rite Aid Goes Too Low for NYSE
Rite Aid has advised shareholders that the New York Stock Exchange (NYSE) may move to delist the company’s stock after a couple of weeks of it trading below $1 a share. The NYSE requires companies to maintain a closing average of $1 per share for 30 days of trading to maintain its listing.
The drugstore chain indicated the NYSE has not notified it of being noncompliant. The company would be allowed to continue trading for up to six months following a letter of non-compliance from the NYSE. It would be delisted if it were not able to maintain the $1 closing average for its shares over the 30-day period.
According to a report on The Patriot-News website, Rite Aid has said it will “take steps to cure any such non-compliance.”
John Ransom, an analyst with Raymond James, told The Associated Press in an email, “All stocks have gotten destroyed lately, especially any company with a shaky balance sheet. Rite Aid has the worst balance sheet of any company I follow.”
Rite Aid’s shares closed at 52 cents yesterday.
Discussion Questions: From a practical standpoint, what does Rite Aid’s share price mean to the day-to-day running of the business? Beyond its share price, what does Rite Aid need to do to fix itself?
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Gene’s advice to suppliers is right on target. It will become increasingly difficult for suppliers to manage their receivables during this financial crisis. Resisting the natural desire to help troubled customers and not lose any business will be a real test for suppliers and can threaten their own liquidity. Business relationships will be tested with many being damaged beyond repair.
Not helping a troubled business that survives can hurt your business for many years afterward. Helping a business that doesn’t survive can sink your business in the short term. Many very tough decisions will have to be made as this financial mess continues.
Share price doesn’t have that much to do with day to day operations. Some companies seem to operate indefinitely with a near worthless stock price, such as Penn Traffic. The way things are going, Rite Aid won’t be alone as other major retailers continue their descent towards the one dollar mark.
I’m not sure how to fix Rite Aid except for all the empty canned answers such as serve the customer and give them what they want. Most likely they will need to hook up with a stronger drug store chain.
The answer has already been stated as little directly, day to day, but a lot indirectly. It simply reduces their ability to be considered viable in the marketplace, and that has a tremendous amount of implications related to being able to create and execute the initiatives necessary to recover.
Worse than that, they don’t pass the parking lot test. In nearly every area of our market the corners are adorned with both a Rite-Aid and a Walgreens. For some corners, its the aforementioned and CVS. Just check the lots. One is empty and the other is a scurry of activity. Clue: It’s not Rite-Aid dealing with the crowded lot. Step inside and the entire story is told as to why their problems are more than their share price. Walk across the street and see the difference.
Day to day operations are not affected by the stock price directly, only indirectly. Stock value is a currency that can be used for acquisition, so a low price limits rapid expansion. High stock price supports lower borrowing rates indirectly. Rite Aid will do what many technology companies did after the bubble burst. They simply do a reverse stock split. The alternative is move to the NASDAQ exchange.
What Rite Aid’s stock price reflects is a vote of “no confidence” by the financial markets. What will this mean? Well let’s ask around:
Will you invest in Rite Aid? No! Will you come to work for Rite Aid? Not if I have another choice! Will you extend terms to Rite Aid? Only to the extent that I am legally bound! Will you provide Rite Aid marketing assistance? No!
The sale of stock provides the most basic leverage for a public company. If no one wants your stock, why would they want your debt?
Rite Aid has many more problems than just stock prices. Leadership reengineering is badly needed. Anyone deciding to acquire them will have great opportunities for making them leaner and more efficient.
Perception of financial weakness is dragging down many companies right now, whether that perception is grounded in reality or not. The financial industry is littered with examples, and the trend is becoming more prevalent in retail too. (Think Steve & Barry’s, which was hurt not only by perception but by reality.)
The issue with Rite Aid’s share price can become a self-fulfilling prophecy if it contributes to a tightening of credit and a general perception that the company is in deep trouble–warranted or not.
From a practical standpoint, Rite Aid must not let the price of its stock get in the way of running the business. That is unless certain debt is collateralized by Rite Aid stock, which will shrink working capital, which is an entirely different problem. Otherwise, it is business as usual. Operators should not be looking at stock prices.
The $1.00 rule has nothing to do with the viability of the stock. If because of the crush of the stock market, many companies are facing this dilemma, there is good reason to believe that the rules would be loosened. If that doesn’t happen, Rite Aid can execute a reverse stock split which would increase their per share price. For example, if the stock is at $0.52, a 1 for 10 reverse stock split would make the price $5.20 and the rule is no longer an issue. The rule has nothing to do with the financial situation of the company.
Of much, much greater concern is the borrowing power of Rite Aid. Retailers rely on cash flow financing and if, because of a poor balance sheet, financing gets more expensive and less available, the everyday business will be dramatically affected. And, my experience with Rite Aid says that, if I am a supplier, I would take great care in the amount and length of the receivables I have outstanding to them. In good times, Rite Aid is notorious for extending payments. If their traditional borrowing power is limited, the next best place for them to get cash is to extend their suppliers. Be assured, they will.
The share price will not have a major impact on its day-to-day business. Consumers are focused on low prices. Whichever retailer can provide them will see and increase in business. The economic effect of the stock market turmoil has yet to fully hit consumers. When it does, retailers across the board will suffer. Hang on, it’s going to be a bumpy ride.
Of course a company’s absolute stock price has nothing to do with cash flow and profitability. Clearly, Rite Aid has many problems which need to be fixed quickly. However, Rite Aid has two important attributes going for it: 1) RAD is in a great industry which, whoever is elected, will continue to benefit from favorable attitudes and demographics; and 2) Its new senior management team is excellent.
Having worked with John Standley and Frank Vitrano in an almost equally challenging environment (Pathmark), I know that they represent the right combination of toughness, industry knowledge, and a dedication to get the job done. It will take time, but I would not bet against them.
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Gene’s advice to suppliers is right on target. It will become increasingly difficult for suppliers to manage their receivables during this financial crisis. Resisting the natural desire to help troubled customers and not lose any business will be a real test for suppliers and can threaten their own liquidity. Business relationships will be tested with many being damaged beyond repair.
Not helping a troubled business that survives can hurt your business for many years afterward. Helping a business that doesn’t survive can sink your business in the short term. Many very tough decisions will have to be made as this financial mess continues.
Share price doesn’t have that much to do with day to day operations. Some companies seem to operate indefinitely with a near worthless stock price, such as Penn Traffic. The way things are going, Rite Aid won’t be alone as other major retailers continue their descent towards the one dollar mark.
I’m not sure how to fix Rite Aid except for all the empty canned answers such as serve the customer and give them what they want. Most likely they will need to hook up with a stronger drug store chain.
The answer has already been stated as little directly, day to day, but a lot indirectly. It simply reduces their ability to be considered viable in the marketplace, and that has a tremendous amount of implications related to being able to create and execute the initiatives necessary to recover.
Worse than that, they don’t pass the parking lot test. In nearly every area of our market the corners are adorned with both a Rite-Aid and a Walgreens. For some corners, its the aforementioned and CVS. Just check the lots. One is empty and the other is a scurry of activity. Clue: It’s not Rite-Aid dealing with the crowded lot. Step inside and the entire story is told as to why their problems are more than their share price. Walk across the street and see the difference.
Day to day operations are not affected by the stock price directly, only indirectly. Stock value is a currency that can be used for acquisition, so a low price limits rapid expansion. High stock price supports lower borrowing rates indirectly. Rite Aid will do what many technology companies did after the bubble burst. They simply do a reverse stock split. The alternative is move to the NASDAQ exchange.
What Rite Aid’s stock price reflects is a vote of “no confidence” by the financial markets. What will this mean? Well let’s ask around:
Will you invest in Rite Aid? No! Will you come to work for Rite Aid? Not if I have another choice! Will you extend terms to Rite Aid? Only to the extent that I am legally bound! Will you provide Rite Aid marketing assistance? No!
The sale of stock provides the most basic leverage for a public company. If no one wants your stock, why would they want your debt?
Rite Aid has many more problems than just stock prices. Leadership reengineering is badly needed. Anyone deciding to acquire them will have great opportunities for making them leaner and more efficient.
Perception of financial weakness is dragging down many companies right now, whether that perception is grounded in reality or not. The financial industry is littered with examples, and the trend is becoming more prevalent in retail too. (Think Steve & Barry’s, which was hurt not only by perception but by reality.)
The issue with Rite Aid’s share price can become a self-fulfilling prophecy if it contributes to a tightening of credit and a general perception that the company is in deep trouble–warranted or not.
From a practical standpoint, Rite Aid must not let the price of its stock get in the way of running the business. That is unless certain debt is collateralized by Rite Aid stock, which will shrink working capital, which is an entirely different problem. Otherwise, it is business as usual. Operators should not be looking at stock prices.
The $1.00 rule has nothing to do with the viability of the stock. If because of the crush of the stock market, many companies are facing this dilemma, there is good reason to believe that the rules would be loosened. If that doesn’t happen, Rite Aid can execute a reverse stock split which would increase their per share price. For example, if the stock is at $0.52, a 1 for 10 reverse stock split would make the price $5.20 and the rule is no longer an issue. The rule has nothing to do with the financial situation of the company.
Of much, much greater concern is the borrowing power of Rite Aid. Retailers rely on cash flow financing and if, because of a poor balance sheet, financing gets more expensive and less available, the everyday business will be dramatically affected. And, my experience with Rite Aid says that, if I am a supplier, I would take great care in the amount and length of the receivables I have outstanding to them. In good times, Rite Aid is notorious for extending payments. If their traditional borrowing power is limited, the next best place for them to get cash is to extend their suppliers. Be assured, they will.
The share price will not have a major impact on its day-to-day business. Consumers are focused on low prices. Whichever retailer can provide them will see and increase in business. The economic effect of the stock market turmoil has yet to fully hit consumers. When it does, retailers across the board will suffer. Hang on, it’s going to be a bumpy ride.
Of course a company’s absolute stock price has nothing to do with cash flow and profitability. Clearly, Rite Aid has many problems which need to be fixed quickly. However, Rite Aid has two important attributes going for it: 1) RAD is in a great industry which, whoever is elected, will continue to benefit from favorable attitudes and demographics; and 2) Its new senior management team is excellent.
Having worked with John Standley and Frank Vitrano in an almost equally challenging environment (Pathmark), I know that they represent the right combination of toughness, industry knowledge, and a dedication to get the job done. It will take time, but I would not bet against them.