Matt Schroeder - Group VP, Strategy and IR Mary Sammons - our Chairman and CEO John Standley - President and COO Frank Vitrano - CFO and CAO Chris Hall - SVP, Pharmacy Business Development

Emily Shanks - Barclays Capital Karru Martinson - Deutsche Bank Ed Kelly - Credit Suisse Mark Wiltamuth - Morgan Stanley Carla Casella - JPMorgan Neil Currie - UBS Bryan Hunt - Wells Fargo Securities

At this time, I'd like to welcome everyone to Rite Aid first quarter fiscal 2011 conference call. (Operator Instructions) I'd now like to turn the call over to Matt Schroeder.

We welcome you to our first quarter conference call. On the call with me are Mary Sammons, our Chairman and CEO; John Standley, our President and Chief Operating Officer; and Frank Vitrano, our Chief Financial and Chief Administrative Officer. On today's call, Mary will give an overview of our first quarter results. John will discuss our business. Frank will discuss the key financial highlights in fiscal 2011 outlook. And then we will take questions. As we mentioned in our release, we are providing slides related to the material we will be discussing today on our website, www.riteaid.com, under the Investor Relations information tab for conference calls. We will not be referring to them directly in our remarks, but hope you'll find them helpful as they summarize some of the key points made on the call. Before we start, I'd like to remind you that today's conference call includes certain forward-looking statements. These forward-looking statements are made in the context of certain risks and uncertainties that can cause results to differ. Also, we will be using a non-GAAP financial measure. The definition of the non-GAAP financial measure, along with the reconciliations to the related GAAP measures, is described in our press release. I would also encourage you to reference our SEC filings for more detail. With these remarks, I'd now like to turn it over to Mary.

Thanks for joining us today as we review our results for the first quarter fiscal 2011. As you can see from our release, our team did a good job of continuing to weather the economic storm that is impacting the sales of most retailers. By reducing costs and operating more efficiently, we more than offset the decline in sales and margins. We increased adjusted EBITDA as a percent of sales, while at the same time improved customer satisfaction ratings on both the front-end and in the pharmacy. Our liquidity is the strongest it's been in several years with more than $1.2 billion at quarter-end. This enables us to continue to withstand an economy that doesn't appear to be headed towards a solid recovery anytime soon. At the same time, the strong liquidity position allows us to continue to invest in initiatives designed to grow our business. We made great progress on many of those initiatives in the first quarter. And in a moment, John Standley will update you on what we've accomplished. But before I ask him to do so, I would like to say a few words about John who later today become Rite Aid's new CEO. I asked John to return to Rite Aid almost two years ago, because I believed he had the right blend of operational knowledge, hands-on management and financial orientation to help us navigate through this difficult recession and bring stability to our company. He has led the charge in making us a more efficient operation in all areas of the company. And as a result, we are much stronger today than a year ago. At the same time, he and his team put in place multiple initiatives to improve our results as we continue to operate, as I said before, in one of the toughest retail environments in recent history. It's been a smooth and easy transition, especially since John and I had already worked closely together 12 years ago at Fred Meyer and then worked even more closely when we both came to Rite Aid in December 1999 as part of the new executive management team. I look forward to continuing to work with him in my role as Chairman. Now, I'd like to turn the call over to John.

Thank you, Mary, for those kind remarks. As today is Mary's last day as Rite Aid's CEO, on behalf of Rite Aid's almost 100,000 associates across the country, I would like to thank Mary for her many contributions to our company in the last 10-1/2 years. Without her, I don't think we'd have a company today. We're fortunate that she has agreed to stay on as Chairman of the Board, so Rite Aid can benefit from her experience and counsel. And I look forward to continuing the strong working relationship we've enjoyed for so many years. Turning to the quarterly results, we held our ground this quarter from an earnings perspective in a challenging economic environment, and we made significant progress with some of our key initiatives that we believe will provide us the sales momentum in the second half of the year. Before I give an update on the progress of our initiatives, I will mention a few key points about the quarterly results. And Frank will go through the results in more detail in just a few minutes. We had positive front-end comps for the combined March-April months, but they're offset by May's decline. June month to date sales, however, are improving from May results, but are still behind last year. We had negative script count in the growth of 90-day scripts in the quarter, which is about half of our decline. We had some impact from the maturation of the Rx Savings Card, and we are cycling some H1N1 benefit in the prior year. The year-over-year decline in pharmacy margin as a percent of pharmacy sales was 97 basis points better from the last quarter, which is a nice improvement. We saw significant reduction in adjusted EBITDA SG&A with a 35 basis point improvement as a percent of sales or $55 million compared to last year's first quarter. Our distribution expenses were 1.44% of sales, our best results in recent years. We earned adjusted EBITDA of $249.8 million, which was slightly better than last year. We had a FIFO inventory reduction of $88.7 million versus last year's first quarter. And as Mary mentioned, we had $1.2 billion of liquidity as of the end of the quarter. And maybe most importantly, we launched our wellness+ card based loyalty program nationwide on April 18, and we now have over 12 million members. All in all, it was a pretty good quarter, although we're not satisfied with sales results. After testing in four pilot markets since October, we launched wellness+ nationwide on April 18. We already have, as I mentioned, 12 million members enrolled as of last week. We are on track to meet or exceed our original goal of having 15 million to 20 million members enrolled by fiscal yearend. Last week, 37% of our chain-wide front-end sales and 36% of our chain-wide scripts were from wellness+ members, which is impressive given that we launched the program just 12 weeks ago. Two weeks ago, we launched a key feature of wellness+ called +UPs. +UPs allow customers to plus-up the value by earning valuable in-store credits which are delivered via register receipts on the purchase-qualifying products. The credits can be used toward the purchase of front-end items on the next visit. +UPs are featured in our ad and are called out in in-store through special sales shelf tax. We are seeing some good results from +UPs as they are driving some additional foot traffic to our stores. The information wellness+ is providing us has really validated our assumptions about the value of loyal customers, and our program is uniquely designed versus other retail programs to attract and retail loyal customers through cheered rewards with increasing levels of front-end discounts in health screening benefits based on the dollar amount of front-end purchases and number of scripts filled. We're also beginning to target marketing based on the information that wellness+ provides us. Overall, we're very pleased with the results of wellness+ so far. During the quarter, in North Carolina, South Carolina and Georgia, we launched a 15-minute service guarantee, subject to certain conditions, for pharmacy patients who had to wait for their scripts. If we are unable to fill the script in 15 minutes, the customer is awarded a $5 gift card. This program has been well received by both patients and pharmacists and has helped improve the script count trend in these markets. We also began our immunization training this quarter. We expect to have over 7,000 immunizing pharmacists at over 3,000 stores ready for flu season. And in addition to flu vaccine, we will provide all immunizations allowed by state regulations. We continue to make significant improvement to our pharmacy patient services, particularly around patient communication. Automated Courtesy Refill notification, Your Prescript is Ready and We'll Call reminders can now be received via voice, text or e-mail. For wellness+ customers, in addition to a 24-hour pharmacist available over the phone, we now have online chat with the pharmacist also available 24/7. In addition, we recently partnered with American Well to devout the real-time online medication therapy management. We'll begin testing this service in a pilot market in the third quarter. During the quarter, we began the rollout of our new private brand architecture. As a refresher, the new architecture includes the following brands, Rite Aid Pharmacy for health products, Renewal for beauty, Pantry for food and certain consumables, Home for household goods, Tugaboos for a new baby; and Simplify is our new price-fighter brand. All of our existing private brand products with a few exceptions will be migrated over time to these new brands with new more contemporary packaging. This brand architecture combined with strong promotional support, good price positioning and continued development of new items will help us grow private brand sales and meet the needs of today's consumer. We converted 60 new items this architecture during the quarter, and expect to have close to 1000 items converted by the end of the fiscal year about 30% of private brand SKUs. During the quarter, private brand penetration increased to 15.4% from 14.9% last year. We continued work on our segmentation initiatives, which played a key role in our SG&A success in the quarter. We continue to develop and test our merchandizing plan for low volume stores, we 34 stores now merchandized with the new planogram. Project simplification continues to improve our offering processes so that we can be more efficient, and so that associates can spend more time focusing on customer service. During the quarter, we implemented a number of initiatives designed to make our stores easier for our associates to operate, including improving to our cash handling and reconciliation procedures, improvements to our replenishment process including weekly cycle counts, and ordering system and simplifying our price change procedures. As I mentioned on last quarter's call, for fiscal 2011 we are expecting that our initiatives are worth $340 of EBITDA, most of which will be offset by cost increases and pharmacy reimbursement rate reductions which is why the midpoint of our guidance is flat to last year. Our guidance does include the cost to roll out wellness+ and train immunizing pharmacists. Of this year's $340 million in initiatives, approximately $100 million is from our segmentation goal of $550 million. We estimate that we obtained a $150 million of our segmentation goal in fiscal 2010, leaving us with a $300 million opportunity after this year's savings are achieved. Looking forward, although this fiscal year will be challenging, I'm very optimistic about future prospects of our company. I'm very excited to be working with close to 100,000 Rite Aid associates to implement the initiatives that will lay the foundation for our future success. With that I'll turn the call over to Frank.

Thanks, John, and good morning everyone. As was mentioned, the first quarter saw a solid progress with our various operating initiatives and continued strong expense control execution despite sales challenges and margin pressure. On the call this morning, I plan to walk through our first quarter financial results, discuss our liquidity position and certain balance sheet items. I will also provide a capital expenditure update, as well as discuss the cost associated with our wellness+ royalty card rollout. Finally, I will confirm our fiscal '11 guidance. This morning, we reported revenues for the quarter of $6.4 billion compared to $6.5 billion for the first quarter last year. The decrease in total sales was primarily driven by a reduction in total store count as well as decline in same store sales. In the quarter, we opened two new stores and closed 15 stores. On a year-over-year basis, we had 58 fewer stores. Same store sales declined 100 basis points, an improvement from our fourth quarter trend. Pharmacy scripts were down 170 basis points, which was impacted by 90-day scripts. Front-end same store sales were down 130 basis points and pharmacy same store sales were lower by 90 basis points during the quarter, which reflected a weak flu allergy season in H1N1 impact last year. Pharmacy sales included an approximate 138 basis point negative impact from new generic drugs. Adjusted EBITDA in the quarter was $249.8 million or 3.9% of revenues, which was consistent with last year's first quarter of $249.2 million or 3.8% of sales. The results were driven by strong cost control initiatives reflected in lower SG&A dollars offset by lower sales and lower pharmacy gross margin dollars. SG&A dollars adjusted for non-EBITDA expenses was $54.8 million lower, and 35 basis points lower as a percent of sales despite total revenues being down $137 million quarter-over-quarter. Net loss for the quarter was $73.7 million or $0.09 per diluted share compared to last year's first quarter net loss of $98.4 million or $0.11 per diluted share. The decrease in net loss was driven by a reduction in SG&A expense and lower lease termination and impairment charges, partially offset by higher interest and securitization costs. The lease termination charge in the current period includes for eight stores for which we recorded a closing provision of about $5.5 million during the quarter. The LIFO charge of $20.5 million compares to $14.8 last year, and the increase is due to a higher than planned Rx inflation. Interest expense of $141.6 million was $17.7 million higher than last year's interest and securitization expense due to the refinancing of our September '10 maturities. Non-cash interest, primarily debt issuance and cost amortization as well as workers' compensation interest accretion was $11.7 million. Total gross margin dollars in the quarter was $62.4 million lower than last year's first quarter, or 39 basis points as a percent of sales. FIFO gross margin dollars was lower by $56.6 million or 30 basis points. Front-end dollar margins were unfavorable $18 million, essentially driven by a $44 million sales decline. The front-end rate was flat for last year as a percent of sales. Pharmacy margin dollars were lower by $41.8 million, or 45 basis points of pharmacy sales driven by lower third party pharmacy reimbursement rates as well as lower Medicaid reimbursement rates largely influenced by the AWP rollback. The lack of new generics and less benefit from generic product cost improvements have also impacted the numbers. The year-over-year decline in pharmacy margin as a percent of pharmacy sales was 97 basis points better than last quarter. The pharmacy margin pressure slowed in the first quarter of fiscal '11 compared to the fourth quarter of fiscal '10 as we began to cycle the more significant macking of new generics which occurred last year. The margin dollar shortfall was partially offset by a lower distribution center cost, driven by closure of two distribution centers and the realignment of (inaudible). Product handling and distribution center expense as a percent of sales was slightly favorable to last year. Selling, general and administrative expenses for the quarter were lower by $88 million or 81 basis points as a percent of sales as compared to last year. SG&A expenses not reflected in adjusted EBITDA were lower by $33 million or 46 basis points, primarily driven by lower depreciation and amortization cost as well as securitization cost from the accounts receivable facility reported last year as SG&A. Adjusted EBITDA SG&A dollars which excludes specific items, the details of which are included in the first quarter of fiscal '11 earnings supplemental information which you can find on our website were lower by $54.8 million or 35 basis points lower as a percent of sales. This reduction in dollars reflects the various cost savings initiatives that have been implemented over the past 12 months as well as store closings. The SG&A improvement was driven by better labor control and lower field controllable cost including utility cost and supplies. I should point out that the timing of the Memorial Day holiday favorably impacted our store level non-work holiday payroll cost in the first quarter by $9.3 million as those costs will be incurred in the second quarter of fiscal '11, whereas they were incurred in the first quarter of fiscal '10 last year. This benefit in the quarter was offset by $11.8 million in incremental advertising and supply cost associated with our wellness+ loyalty card rollout. We also incurred $2.3 million in training cost associated with our pharmacist immunization program in the first quarter, with a higher training cost expected in the second quarter. A strong liquidity position benefited from the various working capital initiatives and spending our capital wisely. As compared to the first quarter of fiscal '10, FIFO inventory is lower by $89 million of which 60% is due to the initiatives, and the balance due to net store closings. FIFO inventory decreased $42 million from year end. Our cash flow statement results for the quarter show net cash provided by operating activities in the quarter as a source of $520 million as compared to a source of $358 million in last year's first quarter. Prepaid rent, interest expense, as well as the timing of purchases and accounts payable payments influenced the balance. Our days payable outstanding in the quarter was 24.8 days. This compares to 24.1 days in the first quarter of last year. Net cash used in investing activities for the quarter was $36.6 million versus $15.5 last year. Last year we received about $29 million in script file sales. During the first quarter of fiscal '11 we opened 2 new stores, relocated 8 stores, remodeled 1 and closed 15. Our cash capital expenditures was $40.6 million, of which $5.5 was from script file buys. Now let's discuss our liquidity position. At the end of the first quarter, we had $1.234 billion of total availability, including just over $1 billion under our credit facility and over $200 million of invested cash. We had zero revolver borrowing outstanding under our $1.175 billion senior secured credit facility with $143 million of outstanding letters of credit. Today, our liquidity is slightly higher at $1.251 billion. Total debt net of invested cash was lower by $143 million from last year's first quarter, and $295 million lower from the fourth quarter of '10. Now let's turn to fiscal '11 guidance. Our guidance is based upon our current trends and a continued difficult economy. We have not factored in any reimbursement rate impact of the recently passed healthcare legislation. The company confirms our existing guidance and continues to expect total sales to be between $25.1 billion and $25.6 billion, and expects adjusted EBITDA to be between $875 million and $975 million for fiscal '11. Same store sales are expected to be in a range of down a 100 basis points to positive 100 basis points over fiscal '10. Net loss in fiscal '11 is expected to be between $355 million and $570 million, or a loss per diluted share of $0.41 to $0.65. Our fiscal '11 capital expenditure plan is $250 million with a $50 million allocation for file buys. We expect to open three net new stores and relocate 30 stores. We are not planning to complete any sale leaseback transactions, and we expect to be free cash flow positive for the year. The guidance includes a total of 80 store closures, half of which includes a store lease closing provision with the balance of stores closing upon lease expiration. The adjusted EBITDA guidance includes the startup advertising and supply cost and discounts associated with the chain wide rollout of our wellness+ customer loyalty program. The advertising and supply cost for the program are estimated to be $31 million with the lion's share incurred in the first two quarters of the fiscal year. In addition to these costs, Generally Accepted Accounting Principles require us to defer a certain portion of the revenues generated by customers, as they qualify for their tiered discount benefit. A silver member must earn 500 points, while a gold member needs to earn 1000 points. Once a wellness+ member qualifies as silver or gold and begins to use their tiered discounts, we are permitted to recognize the deferred revenues as income to offset a portion of the tiered discount. Within each customer's qualification and discount use period, which can span multiple calendar years and fiscal periods, the net impact of these adjustments has no effect on the income statement, as the entries will net to zero over time. Included in our net income guidance is a wellness+ deferral provision range of $30 million to $40 million, which covers fiscal '11. Fiscal '12 will have an additional chart to reflect a full 12-month qualification period. Our bank credit facility has a fixed charge coverage ratio test, which increased from 1.05 to 1.10 beginning in the first quarter of fiscal '11. The impact of not meeting this ratio will limit our ability to access the last $150 million under the facility. At the end of the first quarter, we were in compliance with the fixed charge coverage ratio test. However, given our range of guidance, we may be restricted during the third and fourth quarters. Based upon our liquidity position, we do not expect these restrictions to have any impact on our business. This completes my portion of the presentation, and we'll now open the lines for questions. Operator, we're now ready for the first question.

(Operator Instructions) Your first question comes from the line of Emily Shanks of Barclays Capital. Emily Shanks - Barclays Capital: Frank, I was hoping you could just talk a little bit more about SG&A. I know that you gave us a couple of one timers specifically around the Memorial Day impact, wellness+, and then the pharmacist training. I'm assuming those three items roll through SG&A. Can you give us a little color as to what really drove that year-over-year reduction, the $54.4 million that you quoted?

Sure. Johnny referenced earlier in his remarks some of the benefits that we got from project simplification and some of the other SG&A initiatives that we've had in place here. And if you look at overall store level payroll, we saw a pretty significant decrease in what our costs were on the payroll line. From a labor benefit standpoint, we saw some improvements in terms of our medical cost. And then if you look at some of our individual operating costs, supply costs were lower on a year-over-year basis. We're continuing to get some benefits from our indirect procurement initiative that we have in place, where we're going out and auctioning off some of our ongoing cost. We were able to get some benefits in our advertising line, in our circular cost. We actually did a re-bid this past quarter and were able to get some of the benefits of that, rolling through the numbers. So we have been over the last 12 months continuing to search for ways for us to be more efficient in the store as well as in the back office. A lot of those benefits now are starting to roll through our numbers. Emily Shanks - Barclays Capital: So if I look at what adjusted SG&A dollars on a per store basis did quarterly, this quarter obviously it was down a couple of points on a percentage basis. But it looks like last year and the second through the fourth quarter, you also had some pretty nice year-over-year improvement. Is it a fair assumption from what I'm hearing that we should see incremental savings on a per store basis in these out quarters in fiscal year '11, due to these issues?

We'll obviously continue to get the benefit of it. As you recall last year, if you look at it on a quarter-over-quarter basis, we did have some choppiness in our SG&A. There were some credits that we have gotten in the prior year. If you recall, in the second and the third quarter last year, we have gotten some workers' comp and general liability credits that did influence the number in the second and third quarter. But generally as you look at the trend for the full year, we would expect to continue to see some improvement.

The SG&A improvements kind of tighten as we go through the (year) a little bit. So, we are going to cycle some of the initiatives that occurred during the year last year as we proceed through this year.

Our next question comes from the line of Karru Martinson of Deutsche Bank. Karru Martinson - Deutsche Bank: Just so that we are clear here, there is a $9.3 million benefit to SG&A here in the first quarter because of the memorial payroll shifting now into the second quarter. So we'll see that coming. Correct?

That's correct. Karru Martinson - Deutsche Bank: Okay. Just wanted to be sure on that. And then, when you guys said that the June month to date comps are improving from May, still down from a year ago. So, May was down 1.7. Are we talking within the range of your guidance here or how is that kind of trending?

Yes. I think sales are so far. Obviously, we gave you annual guidance but we're still comfortable with our sales guidance. Karru Martinson - Deutsche Bank: Okay. And then there's been a lot of headlines, a lot of noise with CVS and Walgreens having a bit of a spat over the PBMs. What is the impact to you guys if any, and how is your relationship with CVS care market and the other PBMs?

Well, we obviously watched all that. But I think our relationship is okay with the PBMs. It’s a difficult reimbursement rate environment and we are negotiating with the PBMs all the time. As you know, contracts have some legalities in them around generic reimbursement rates and those kinds of things. So there is always a fairly constant dialogue going on with our PBM partners about reimbursement rates. So it's an ongoing discussion all the time. Karru Martinson - Deutsche Bank: Just lastly, in terms of the script counts kind of trading off here, what are the expectations for the year in terms of replacing some of that lost business with file buys and how do you see that going forward?

Yes. Let me jump back just for a second. We are talking about the June sales, and the comment I made there was really focused on front-end. The front-end comps are actually significant. May was a little tough on the front-end and June has gotten a lot better. On the script counts, we are going to have kind of a funky thing on pharmacy sales in script counts in June because of the way Memorial Day, the holiday, you don't fill a lot of scripts. So that's going to put a little bit of a negative into June sales on pharmacy that we got to kind of get around. Well, once you get past the holiday, the script count trend is more in line with what we saw last month. So that's kind of back to the sales, the thing we talked about later.

Right. And I guess in terms of some of the initiatives, we are continuing to kind of ramp up the file buys. John had talked earlier about the immunization program that we had. The expectation here is for us to be able to get incremental scripts out of that as well.

Yes. So, couple of things; one is that I mentioned it in the comments, there is a 90 days thing going on here. What's basically happening is, we are filling more days in the 90-day kind of fill versus the 30-day kind of fill. So in terms of script count, that is kind of a negative headwind that we're fighting. And that was about half the decline from last quarter in terms of script counts was right there on a single issue. So we got to fill that bucket before we turn positive again in terms of script count. We also had last year this kind of H1N1 sort of hysteria that lasted for a while here in the summer. We've got to get around a little bit of that headwind as well. Ultimately, all the things that we're doing around is making our pharmacy service more friendly, with the communication aspects of it, the 15-minute guarantee which we're testing in some markets. And most importantly, wellness+, which we think as consumers begin to understand it and use it, is going to help us get script count in the long run where we want it to be. And I am very encouraged early on with wellness+ that the penetration in the pharmacy is almost as high as it is in the front-end. The chain wide, with 37% penetration on the front-end's worth 36 in the pharmacy and I think that is just very, very impressive. We are getting in a great penetration of pharmacy, where people are starting to understand the benefit to using our pharmacy and the points that they get and the value that's going to bring them on front-end. I think that's going to help us in the long run here with script count growth.

The next question comes from the line of Ed Kelly with Credit Suisse. Ed Kelly - Credit Suisse: I was hoping that we could go back to the reimbursement question. And maybe you could just provide a little bit more color on what you think really drove the leg down that you talked about last year? And then more importantly, how you think this plays out into the ramp of the generic wave? What's the chance this year that more aggressive mack rates offset a significant part of that catalyst?

Well, it's a chance. First off, I'll start at the beginning. In terms of what we saw in the leg down last year, the single biggest issue in that related to the fact that the year before there was a volume of new generics that we didn't repeat last year. So we had four or five fairly big ones that came out, which would be our fiscal 2009. They were helpful to fiscal 2009. In fiscal 2010, those new generics were heavily macked. As they came through either their six-month or one-year anniversary, they got hit very hard and quickly (bought) certain PBMs. And we didn't have a lot of new generics last year to replace them. Normally you have new generics come in, and by the time they get to the second year of their life cycle where they are heavily macked, you have another group of new generics that comes in and replaces them which kind of either holds, or in prior years maybe even grew your profitability a little bit. We sort of hit this patch in the road where we didn't have a lot of new ones coming in, but we had ones from the prior year that got heavily macked which really drove down generic reimbursement rates last year, particularly in the third and fourth quarter where we saw some very significant impacts. In the first quarter here, we've cycled some of that macking a little bit. There's still not a lot of new generics - couple, but not a ton. And so the situation in the first quarter seems much more stable - still declining, but had a much slower rate than what we saw in the fourth quarter and even in third quarter. So that's kind of the big dynamics. From our perspective, they were rolling around the reimbursement rates. Now we also had the AWP rollback, and we've seen some very aggressive reimbursement rate declines in states on Medicaid. Medicaid reimbursement rates have kind of plummeted here over the last couple of quarters and I think that trend is going to continue during the year. So as I mentioned earlier, we're in discussions all the time with our PBM partners about reimbursement rates, about the generic situation, and I think it will be a difficult negotiation as we get into kind of the generic boom here. But we're going to do our best to try and defend our profitability as it relates to those drugs. Ed Kelly - Credit Suisse: And then last question relates to your immunization program. Could you just maybe provide more color there as well? What percentage of your stores will be able to give shots this year versus last year? How many shots did you do last year and where do you think you'd go this year? And what type of marketing support are you going to get?

Sure; and I don't want to go too crazy with all of that for obvious reasons. But last year we had I think around 2000 immunizing pharmacists; this year we're going to be a little north of 7000. This year will be in like 3000 stores. Last year we did I think around 150,000 or so immunizations. If everything goes like we want it to, and we'll have to see what happens in the marketplace, but I think we could do as many as a million immunizations this year potentially if things go well. And in terms of marketing, I think the way we structured the program is to focus our stores so that we have a good network in key markets where we can really promote and advertise it and support the customer base around those stores. So that's kind of how we're going at it. Ed Kelly - Credit Suisse: What's the competition looking like this year? What's your expectation?

I think everybody will be out there with it. Ed Kelly - Credit Suisse: And then just last question for you, could you also provide some more color on this 15 minute guarantee program that you launched? What impact has it had on the scripts, what impact does it have on labor costs, what type of lift do you need to breakeven?

It's not a huge impact on labor cost. I mean, honestly I think (our team) did a great job. And the reason why it's in the limited number of markets that it's in is because we spent a significant amount of time working with the pharmacists in those markets talking about workflow, talking about safety, trying to make sure this program was really presented the right way. And I think it's been fairly effective in that other than from the training initially there was not a significant labor investment in the program. And it's probably been north of 100 basis points in terms of what it's added to script counts in those markets. It's been a reasonably successful program for us there. Now, it would be a different situation if you were in markets maybe that had more scripts for us. The reason why we pick these markets is because they have been more difficult markets for us.

Your next question comes from the line of Mark Wiltamuth of Morgan Stanley. Mark Wiltamuth - Morgan Stanley: I'd like to congratulate Mary on her tenure and wish her well as she moves into the Chairman role. And also, John, congratulations for you on your new role. Wanted to ask a little bit more on the generics question. You mentioned that the current generic wave was a little soft. What's the outlook as you look into 2011, because it seems like things could slow down even further on the generics into 2011 before we get to the big wave in 2012.

Our forecast is that 2011 picks up I think a tad bit from we are in this year. Mark Wiltamuth - Morgan Stanley: And that's calendar for you or fiscal that you're talking about?

I'm looking at calendar. You're talking about next year, right? Mark Wiltamuth - Morgan Stanley: Right. Do you look at it on a rolling basis or do you look at just, okay, big molecules are coming out this year and that's the gist of it?

I look at a number of different things, but I tend to look at the year-over-year benefit of what it's going to do when that drug comes out. And then I look at what the impact I think is going to be of the macking or whatever that's going to occur as it goes through its lifecycle. So it's kind of a layer cake. Mark Wiltamuth - Morgan Stanley: And maybe you could also give us a little more color on the nature of those H1N1 headwinds from last year. Was it a big boost to the front-end last year, and was there any prescription impact also?

I'm sorry, say that again. I missed that. Mark Wiltamuth - Morgan Stanley: Looking at the H1N1 ramp up from last year, the swine flu outbreak, was there a big sales impact last year on the front-end and was there also a prescription effect as well?

I think the answer is yes and yes probably. And it fell funny. Basically, I think if you take H1N1 on the whole season flu and added them all together through the whole year, it probably wasn't a lot different than the year before. Now, what happened is we got into the sort of summer panic, and we probably got into October and November with a lot more flu shots or a lot more flu scripts and a lot more TC related products and even things like hand sanitizers and that kind of stuff going on. And then when we got to the more normal period of time for flu season, it just wasn't a lot there. So it's kind of like the flu season moves around a little bit here. And so I think we've got some really impacts to get through over the next several months. And then the flu season fell like it did two years ago; we'd probably be ahead in the winter months on flu. But it's just hard to know how the things are going to shape out. Mark Wiltamuth - Morgan Stanley: And then just a little more on your segment initiatives. You said, I think, after the end of this year you'll have another $300 million west of opportunity. What are the big buckets you're shooting for, as we get into next year?

A lot of it's going to be driven around the sales side of the segmentation. We've done a lot of work on the cost side. But the big bites here are really on the sales side. And we had some charts being put up in investor presentations that showed that if we looked at our across shop and maybe who is shopping our front-end and who is shopping our pharmacy and that kind of thing that we thought we had some real sales potential probably here. And that's where we think wellness+ is as it matures. Next year really will give us the opportunity to get up some of those customers who may be a front-end customer that don't use our pharmacy. And we've done some work already in kind of looking at the information that we have that really sort of validates that there is something there related to that that there are customers, as an example, that use the front-end who are pharmacy users that for whatever reason have chosen not to use our pharmacy. And so that will be one of the big buckets. There are two big merchandizing things going on that I think will really mature next year. We've been working on merchandizing for more volume stores. We've also been working on some merchandizing ideas for some more kind of health and wellness focused stores. And we'll talk about that more as we get a little more wind on the sales. So those are some of the big segmentation opportunities as we go forward. And all those things that we're talking about on the merchandizing side ultimately roll into some opportunities in the distribution network as they come to fruition. Mark Wiltamuth - Morgan Stanley: And obviously cost cutting has been a big factor around several quarters. And how much more that is to go? You said you're going to be lapping some of that. But is there a dollar number that you're still targeting, left to attack?

We still see we think some opportunities. I don't know if they're going to come in quite as big a bites as some of the early things that we got. But we still have some areas to work, and I don't think I have an exact dollar number to throw to you right this second. But there's still going to be I think a few nibbles that we get on the SG&A side.

Your next question comes from the line of Carla Casella of JPMorgan. Carla Casella - JPMorgan: You mentioned that you expect to open a net 3 stores. Can you talk about this ballpark, how that falls in terms of openings and closings?

Carla, the closings here will be pretty much throughout the year. There's no one particular quarter. We closed eight here in the first quarter. In terms of the openings on the remodel, the relos, Chris, any sense of the timing on the relos by quarter?

I can bring it out, yeah.

Carla, we'll come back (inaudible). Carla Casella - JPMorgan: Okay. And then, in the first party you mentioned for those eight stores you took about 5.5 million lease termination. Does that imply that for 80 store closures for the year, half of them will have lease provisions? Does that mean we are expecting another 27, 28 million or so for the year, or total 27, 28 million for the total 40 that would have lease termination? Is that a good way to look at it?

Yes, that would be a good way of looking at it. Carla Casella - JPMorgan: And then, what percentage of your scripts today is 90-day? You mentioned that it's trended up in the quarter.

That's 7%. Carla Casella - JPMorgan: And where do you see that going?

Higher. Carla Casella - JPMorgan: Okay. And then, can you just update us where you stand in terms of interest rate hedges?

Do not have any. Carla Casella - JPMorgan: Okay. And then the cost to open a store, or a relo or a new store, looks like its turning like only about $1.5 million. That sounded a little bit low to me.

We're not building them ourselves; typically it's a landlord build here. So our costs are basically fixtures and equipment to open up the store.

Your next question comes from the line of Neil Currie of UBS. Neil Currie - UBS: Looking at your overall guidance for comps for the year and the fact that through the first half and June to date you are below that level, obviously assumes quite a rebound in the second half of the year. And given what you said about the economy, I'm just wondering whether this is more a function of comparisons easing or some real confidence you have in wellness + to drive the comp in the second half of the year?

Sum of both. I think wellness+ has done well, and we've only really had an opportunity to kind of test drive it so far. So as we get a chance to really work it here over the next couple of quarters, I'm excited about what I think it can do for sales. Obviously, you don't know for sure until you really get out there with those things. But I am encouraged by what we've seen so far. Obviously, like you mentioned, we have some comps that are soft as well to come around against and help us a little bit. So it's a combination of those things. Neil Currie - UBS: It's been noticeable in the last 18 months or so when the economy took a downturn that drug stores have generally been having a tougher time around seasonal events than they've had in the past. And I wonder whether you see that continuing to happen or what your approach might be towards how much inventory you're allocating around seasonal events.

I'd say for us we feel like there's kind of two things going on in the story. One is that first Christmas, I guess that was 2009, I got my years right, when the economy first fell apart, we really got hit hard in seasonal items. I mean nobody showed up to buy that stuff and we really struggled our way through that, clearing it out and cleaning it up. And our reaction to that and probably appropriately so was to really try and sort of dial into merchandizing quite a bit tighter, reduce the number of items try and focus on the items that we thought were key to the holiday. And I think that's honestly been fairly effective. We've really managed the inventory substantially better. But I think it has become a little bit for us of a self-fulfilling prophecy. And so what we're trying to do is sort of balance a little bit better our concerns about holiday sales, with having the right selection of inventory and right levels of inventory in the store. And I think that's how we're going to go forward. Neil Currie - UBS: Until you see in those events your customers are going to, if they're not going to Rite Aid, is it Dollar Stores or Discounters or a combination.

I think it's a sum of that. Some of it are just not buying the stuff.

Your next question comes from the line of (Kathleen Brady) of Citadel Securities.

On the cash flow statement, you have given a color to this with regards to your accounts payable. I just want to explore that a little bit more. You mentioned the effect of timing. So will we see a snapback on the accounts payable for the next quarter?

Actually I think what you'll see is really this is really an impact from the fourth quarter to the first quarter here, Kathleen. This is the snapback.

And then also with regards to generics and the macking on the generics, how much insight do you have on that right now? I can see you enter into negotiations with the PBMs. So they generally lay out a schedule for you such that you have a pretty good insight for the rest of the year on how these will mack out?

No. I mean it really varies quite a bit by PBM in terms of how it works. It's different by contract. So there is different kind of situations that we have. Some we have more insights than others. That's how it sort of works, how it's going to play.

Okay. So as they reach the maturity date, that's when the negotiations start?

It's not so much that you can negotiate each individual's generic necessarily as it comes across. We know it's in the market. We know what we're filling. We know what the reimbursement rate is. We're in discussions. We know it's probably going to get macked at some point. We're not necessarily and often not hold in advance what the mack is going to be. But we can see it as it occurs. And then if we (inaudible) or are out of sync or not where we were expecting, that starts a dialogue.

And then also, you'd entered into a new contract with McKesson. That's taking hold at this point, correct?

That's correct.

And can you talk about the impact that that's had on your pharmacy margins?

We didn't disclose the impact.

I assume it was a positive impact.

It was. We improved the contract. I guess we didn't give them on or so. I was going to say $20 billion, but I stopped.

And then also with regards to June, you had said that June was trending better. Is a good portion of that really the seasonal? If I remember, with May, you gave the call out to California being weak. It would sound like it was weather related.

That's certainly a part of it. Weather has a gotten a little bit better out west, and that's clearly helped a little bit. In fact, probably weather is a little better everywhere. Also though, I think some of the things with wellness+ are getting a little bit of traction in fields like particularly the +UPs are effective in our ads. Just going back to (Carla's) question with regard to the new store openings, basically the plan is for seven in second quarter, nine in third quarter and seven in the fourth quarter.

And your next question comes from the line of Bryan Hunt of Wells Fargo Securities. Bryan Hunt - Wells Fargo Securities: Could you talk about your cash balance? I think the goal this year was to pay down debt with free cash flow and yet you're sitting on a big pile of cash. Do you foresee using that cash to fund working capital as you move throughout the year or do you feel like there is a real opportunity to take out some debt in this upcoming quarter?

Right now as we kind of look at the full year, we're expecting to generate about $100 million to $110 million of free cash flow. And obviously the balance here is one portion of that we need to invest back in the business and the other piece is to pay down some debt and we want to really try to accomplish both. If we were to kind of increase any incremental dollars on the CapEx side, it probably would be in the areas of file buys into our technology. And then with regard to paying down debt, we would look to be opportunistic with regard to the ability to do that in terms of paying down some of our outstanding bonds. Bryan Hunt - Wells Fargo Securities: If I recap the call appropriately in my head, you all sound very optimistic about wellness+ and generating some stability in the business from cost savings and yet you are sitting on a vast amount of liquidity. I mean other than file buys or technology, where do you see yourself really spending some CapEx or do you feel like there is a real opportunity to accelerate CapEx, given what you have done with the business over the last quarter or two?

Bryan, clearly if we look at our CapEx spend today at 1% of sales, that's not a long term sustainable CapEx spend. Okay? We did it over the last year and a half for all the appropriate reason and we're comfortable at that level this year, even though we did increase it last year to this year. But there still are opportunities for us to deploy capital to get good returns, file buys, invest in technology. There's still opportunities in the stores to continue to remodel some of the existing Rite Aid stores. As you recall, we spent a fair amount of money as part of the acquisition in the BE stores. But really haven't gone back and invested in the core Rite Aid stores. So, there is opportunity for us to put some incremental dollars back into those stores. Bryan Hunt - Wells Fargo Securities: And my last question is, if you look at inventory per store, it's at the lowest level really since Q1 fiscal '05 granted you didn't have the extra stores at those times, do you believe you are at an appropriate level seasonally on inventory and do you feel like inventory maybe too low on your impacting sales at this point?

I guess yes and no. On the one hand I still think we see some things from and inventory perspective that are opportunities. On the other hand, I think we've seen some instances where yeah we probably came out a little tighter on inventory and some things than we wanted to be. So, it's hard to broad brush the answer because you are talking about 20,000 plus SKUs and 4,700 stores. But I think there are still opportunities on both sides of the coin. We are very focused right now on improving our add-in stocks, making sure that those featured items are where we want them to be. We've been working on the store level ordering. There is some work going on behind the scenes in terms of how we actually purchase the products and how much we put in the warehouse and how much we make available to the stores. On the flip side, we still see some inventory, some categories and some items that don't have the velocity that they probably should have for the level of inventory that we've got. So, it's still both ways in my mind. Not one single answer to this one. Bryan Hunt - Wells Fargo Securities: I've had the luxury being in your market, seeing advertising on the 15-minute guarantees. Could you talk about how you are fulfilling the 15-minute guarantees, what maybe your hit rate is in terms of getting the 15-minute guarantee out the door versus having to issue that $5 gift certificate?

I think it's actually been very high. In terms of hitting the 15 minutes, it's actually been very good. Bryan Hunt - Wells Fargo Securities: Are you running in the 90% plus level?

Yes.

Your next question comes from the line of (Mary Gilbert of Internal Capital).

I wondered if we could get an update on your dark rent, particularly with the store closings that have occurred in the first quarter and what you anticipate for the balance of the year. What will that take us for dark rent in total for this year and as we go forward?

Yes, total dark rent costs for the year, Mary, is still estimated to be about $100 million.

For this year and then going forward, will that start to come down or how should we look at that?

Yes, it's really over the next seven or eight years or so and it kind of layers off depending on the year, anywhere between $5 million and $8 million.

Okay, so $5 million to $8 million, that's helpful. And then, how should we look at, because it looks like you've continued to make progress on the working capital side. So, in looking at the free cash flow generation this year, the $100 million to $110 million how much of that reflects cash generated from working capital excluding the impact of this dark rent?

Basically we're kind of planning to be able to reduce our kind of store level distribution center level inventory by about $100 million. Yes, most of the free cash flow we look to generate is really from the inventory benefit.

And that $100 million to $110 million also covers lease termination cost for this year?

Yes.

And that's for $27 million, right?

Yes.

And then, I thought earlier on the call when you were talking about reimbursement rate in providing guidance, I think that you said that the guidance didn't include the impact of, I forget what, reimbursement, so I wanted to...

Healthcare reform I think.

Yes, do we have an idea of what that could impact could be?

We don't, and I'm not sure it's going to be in this fiscal year.

And then when you talked about new generic introductions next year, just being modest in terms of the benefit, can we get any more clarity on that? Particularly in terms of timing, is it more towards the end of 2011, how should we look at that?

Looking at the schedule and what this thing basically says is that 12 and 11 in terms of it's net impact on us are going to be fairly similar to our fiscal year '12 and our fiscal year '11, so your calendar year '11 your fiscal year '12. In next year, I mean just kind of looking at this, it looks like in terms of the items that kind of fall throughout the year, but in '11 Lipitor comes in late in the calendar year, and it's a chunk.

So it comes in late. Do you have the timing exactly, when?

You know we just estimated honestly and obviously it's late in fiscal year.

So that's where we're going to get the real benefit in calendar 2012.

That's the beginning, it starts late in the year. In calendar 2011, Lipitor starts late in the year end and yes, hits calendar 2012 big time. We'll take one last question here.

Your final question will come from the line of (Rosemary Sisson of Knight Capital).

I wanted to ask some questions about capital spending and remodeling. How much of it of the $250 million that you plan to spend this year will be free models?

Yes, so the question was, how much of our CapEx expenditure was going to be for store remodels? And the answer is about $31 million.

And when you have to remodel a store, what do you generally get? I know that it probably varies a lot, but what do you generally get in terms of the pick up in sales?

It depends on the situation honestly.

Yes, it's a wide range.

It's a wide range.

Okay, and when you go on to remodel a store what do you expect in terms like how much do you spend per store and what do you expect to get in terms of return, what's the payback period or whatever just to get me a sense for how you decide which stores to remodel?

There're some stores that you got to remodel just because they need to be remodeled, they're not necessarily going to pay you a huge return, there's a maintenance kind of aspect to this thing. I mean a remodel can be anywhere from $100,000 probably, what are you saying, Chris, $1 million seems like a big remodel to me. But anywhere in that range I guess depending of what we do. So we have some kind of paint pattern sort of thing that we do and really just kind of clean the store up. Those in the low hundreds and I guess for $1 million we got to think replace everything.

If you have bunch of money that you could spend to remodel the stores that you'd like to, could you characterize how many will be in the lower end and how many will be upper end of that range?

Well, I mean, I think I would probably peg it somewhere towards the middle honestly. Most of the stores you'd go into you'd want to probably do floors, ceilings, paint the walls, new shelving and fix refrigeration. So, you'll probably need $500,000 to $600,000; I'm guessing to get that done.

You mentioned that the Rite Aid course stores needed more than the books cited, so…

There's a number of them, I mean a lot. Once we turn this picket back on, we'll be doing a fair number of remodels.

Once you get through kind of (booked) here, I mean the (258) does it need to go to 600 or give me anything about what you're thinking?

Yes, again the question there, I don't know if everybody can hear you, because you're kind of fuzzy. So the question is, what should normalized CapEx be? And we've been fairly consistent in saying that it probably should be around $500 million, probably double what we're going to spend this year. Now would be something that over the next 2 or 3 years we would eventually move to. I think that's it. I think we are done. I thank you all very much for joining us today, and we'll talk to you soon.

Thank you gentlemen. This concludes today's conference call. You may now disconnect.