Matt Schroeder - Group Vice President of Strategy & Investor Relations and Treasurer John T. Standley - Chairman of The Board, Chief Executive Officer, President and Member of Executive Committee Frank G. Vitrano - Chief Administrative Officer, Chief Financial Officer and Senior Executive Vice President

Edward J. Kelly - Crédit Suisse AG, Research Division John Heinbockel - Guggenheim Securities, LLC, Research Division Karen Eltrich - Goldman Sachs Group Inc., Research Division Carla Casella - JP Morgan Chase & Co, Research Division Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division Lisa C. Gill - JP Morgan Chase & Co, Research Division Emily E. Shanks - Barclays Capital, Research Division Joseph Stauff - Susquehanna Financial Group, LLLP, Research Division Karru Martinson - Deutsche Bank AG, Research Division Mark Wiltamuth - Morgan Stanley, Research Division Mary Ross Gilbert - Imperial Capital, LLC, Research Division Jason DeRise - UBS Investment Bank, Research Division

Good morning. My name is Holly, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Rite Aid First Quarter Fiscal 2013 Conference Call. [Operator Instructions] I would now like to turn today's conference over to Matt Schroeder. Please go ahead, sir.

Thank you, Holly, and good morning, everyone. We welcome you to our First Quarter Conference Call. On the call with me are John Standley, our Chairman, President and Chief Executive Officer; and Frank Vitrano, our Chief Financial and Chief Administrative Officer. On today's call, John will give an overview of our first quarter results and discuss our business. Frank will discuss the key financial highlights and fiscal 2013 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, including annual earnings and sales guidance on our website, www.riteaid.com, under the Investor Relations Information tab for conference calls. This guidance is a point-in-time estimate made early in the fiscal year. The company expressly disclaims any current intention to update it. This conference call and the related slides will be available on the company's website until the next earnings call unless the company withdraws them earlier, and should not be relied upon thereafter. We will not be referring to the slides directly in our remarks but hope you will 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 actual results to differ. These risks and uncertainties are described in our press release, in Item 1A of our most recent annual report on Form 10-K and other documents we file or furnish to the Securities and Exchange Commission. 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 measure, are described in our press release. With these remarks, I'd now like to turn it over to John. John T. Standley: Thank you, Matt, and thank you all for joining us this morning to review our fiscal 2013 first quarter results. We continue to make strong progress, thanks to a companywide focus on executing key sales initiatives, taking good care of our customers and operating more efficiently. As a result, we have now grown same-store sales and adjusted EBITDA for 6 consecutive quarters, and I would like to take this opportunity to thank our entire Rite Aid team for their hard work in driving these positive results. During the quarter, same-store sales increased by 2.5% over the prior year period, including a 2.7% increase in the front end and a 2.4% increase in the pharmacy. Prescriptions sold at same stores increased by 3%, which is primarily due to additional prescriptions resulting from the Walgreens/Express Scripts dispute. Adjusted EBITDA for the quarter increased $11.3 million from the prior year's first quarter to $274.2 million. The increase in adjusted EBITDA was driven by our strong top line results and an improvement in pharmacy gross margin, partially offset by a $20.9 million charge to settle certain class-action lawsuits. The improvement in pharmacy gross margin was the result of new generic drugs that have come to market in the past several months, which have increased our generic drug penetration by over 3% to 79%. This improvement was partially offset by pharmacy reimbursement pressure. The increase in our generic penetration combined with expected future significant reduction in generic drug costs will cause our sales per script and, correspondingly, our pharmacy sales to decline for the remainder of the year. Net loss for the quarter decreased by nearly $35 million compared to the prior year period and improvement driven by a higher adjusted EBITDA and decreases in depreciation and amortization expenses and lease termination impairment charges. We also ended the quarter with over $1.1 billion in liquidity, giving us ample resources to operate our business. In terms of key sales initiatives, our wellness+ customer loyalty program continues to be a game changer. The number of active members, defined as those who have used their card at least twice in the past 26 weeks, was 25 million at the end of the quarter, an increase of 11% over the same period the previous year and consistent with last quarter. Card usage continues to be strong, as members accounted for 75% of front end sales and 69% of prescriptions filled in the first quarter compared to 67% and 62%, respectively, in last year's first quarter. Members continue to take advantage of the value we offer through the program, including both tier discounts received by achieving various point levels and through product-specific +UP Rewards. In fact, we issued nearly 14 million +UP Rewards in the first quarter. In the pharmacy, we continue to focus on delivering additional clinical services to more patients. Last year's flu vaccination program was very successful, and we were able to build on that success through our shingles vaccination campaign in the first quarter. We more than doubled our number of shingles vaccinations during the quarter due to our additional focus on this opportunity and increased availability of the vaccine from the manufacturer. We are now shifting our focus to immunizations for children entering school, especially in terms of pertussis vaccinations. And soon, we will be ramping up this year's Flu Shot program. We expect to substantially grow this area of our business now that most of our pharmacists have had at least one full year providing a variety of immunizations and as more consumers become aware of how convenient it is to receive their vaccination from a Rite Aid pharmacist. According to the New England Healthcare Institute, poor medication compliance leads to $290 billion in avoidable healthcare spending each year. At Rite Aid, we're using our new Rite Care Prescription Advisor to help our pharmacists conduct highly focused discussions with patients who need help improving their medication compliance. During the quarter, our pharmacists consulted with nearly 300,000 patients using this tool. We believe that one-on-one interaction with a pharmacist is an effective way to help patients understand the importance of taking their medications as prescribed. Our store remodeling initiative is gaining momentum as we continue to convert high-volume stores to our groundbreaking new wellness format. For the quarter, we remodeled 143 stores and are on pace to reach our goal of completing 500 remodels during fiscal 2013. We had a total of 423 wellness stores by the end of the quarter and plan to have 780 by the end of the fiscal year. Our wellness stores are designed to help customers in their pursuit of health and wellness by offering hundreds of new wellness-related items and expanded clinical pharmacy services. By bringing this format to additional stores, we are increasing patient access to important services, such as medication therapy management and diabetes care. In addition, the unique interior design of these stores provides easier access to the pharmacy and enhances the overall shopping experience. We continue to see a positive impact on front end sales at these stores versus the chain. We have now trained 680 Wellness Ambassadors to work in our stores, and we're pleased with how these associates are providing a level of service that differentiates us from the competition. As noted during our last call, we recently completed the conversion of more than 2,900 items to our new Rite Aid brand architecture. During the quarter, customers continue to respond positively to our new package designs and new brands. Private brand penetration increased to 17.9%, a 2.3% increase over the prior year's first quarter penetration. Also in the quarter, we completed $9 million in prescription file purchases. I'll turn it over to Frank to provide additional financial details on the quarter as well as our revised outlook for fiscal 2013. But in summary, we're pleased with the progress we're making in our turnaround efforts and are working hard to ensure continued success as we move forward. Frank? Frank G. Vitrano: Thanks, John. Good morning, everyone. As John mentioned, first quarter sales and earnings were strong, reflecting good progress in our turnaround and the benefits of the various initiatives we've been working on, as well as new ESI business. This is the sixth consecutive quarter of EBITDA and same-store sales growth. On the quarter -- on the call this morning, I plan to walk through our first quarter fiscal results, discuss our liquidity position, certain balance sheet items, our capital expenditure program and finally, update fiscal '13 guidance. As previously reported, revenues for the quarter were $6.5 billion, which was a 1.2% increase to last year's first quarter. This was the fourth consecutive quarter of total revenue growth, reflecting the improvement in same-store sales and fewer store closings. In the quarter, we closed 15 stores and did not open any net new stores. On a year-over-year basis, we operated 52 net fewer stores. Same-store sales increased 2.5% in the quarter, reflecting the positive impact of wellness+ and positive script count. Front end same-store sales were up 2.7%, and pharmacy same-store sales were higher by 2.4%. Pharmacy same-store comp scripts were positive 300 basis points, primarily driven by the new ESI scripts. Pharmacy same-store sales were positively impacted by strong script growth but included an approximate 326 basis point negative impact from new generic drugs. We expect the negative sales impact of new generic drugs to increase throughout the year. Adjusted EBITDA in the quarter was $274.2 million or 4.2% of revenues, which was $11.3 million or 4.3% higher than last year's first quarter of $262.9 million or 4.1% of revenues. The new incremental ESI script benefit in the quarter is estimated to be $15 million to $20 million. We believe we are getting our fair share of new ESI scripts. The results also include a $20.9 million or $0.02 per share litigation provision in connection with a proposed settlement of 15 wage and hour class action lawsuits. The overall results were driven by favorable sales and script trends, improved gross margin trends and continued expense control. Net loss for the quarter decreased to $28.1 million or $0.03 per diluted share compared to last year's first quarter net loss of $63.1 million or $0.07 loss per diluted share. The net loss improvement was driven by higher adjusted EBITDA, lower depreciation and amortization expense of $11 million and lower lease termination and impairment charges. As part of the 2006 acquisition agreement, Rite Aid was indemnified by the Jean Coutu Group for tax liabilities related to any pre-acquisition period tax audits of Brooks Eckerd. The IRS finalized the audit of Brooks Eckerd for whole years ending up to and including the acquisition date of June 4, 2007, resulting in no tax payments. As a result, we recorded an income tax benefit of $60.2 million in the quarter related to the settlement of these pre-acquisition period tax audits and recorded a corresponding charge in selling, general and administrative expenses for the reversal of an indemnification asset related to this matter from the Jean Coutu Group. The tax benefit and the corresponding SG&A charge had no impact on net loss, adjusted EBITDA or cash flow. The company also recorded a $17.8 million or $0.02 per share loss on debt modification as a result of the refinancings completed in the first quarter. You'll recall on the fourth quarter call, I commented that our guidance didn't include any provision for the Jean Coutu tax settlement or any refinancing. However, it is now included in our updated guidance. The litigation settlement and the loss on debt modification impacted net loss by $0.04 per share. Total gross margin dollars in the quarter were $57.9 million higher than last year's first quarter and 58 basis points higher as a percent of sales. FIFO gross margin dollars were higher by $56.6 million or 56 basis points, and adjusted EBITDA gross profit, which excludes specific items primarily LIFO and the wellness+ revenue deferral, the details of which are included in the first quarter fiscal '13 earnings supplemental information, which you can find on our website, is favorable to the prior year's first quarter by $56.8 million and 55 basis points as a percent to revenue. Front end gross profit was higher and the rate was lower, driven by strong Rite Aid brand penetration, partially offset by higher tier discount investments related to wellness+ customer loyalty program. Pharmacy gross profit dollars and rate were both higher with the benefit of new generics, partially offset by continued pharmacy reimbursement rate pressures. Selling, general and administrative expenses for the quarter were higher by $102 million or 128 basis points as a percent of revenues as compared to last year. SG&A expense not reflected in adjusted EBITDA were -- was higher by $56.3 million, primarily due to the reversal of the Jean Coutu tax-related indemnification asset previously discussed. Adjusted EBITDA SG&A dollars, which excludes specific items, the details of which, again, included on the first quarter fiscal '13 supplemental information package, were higher by $45.5 million or 43 basis points as a percent to revenues. The increase in dollars primarily reflect the $20.9 million class action lawsuit settlement, as well as a $9.1 million increase in holiday pay as Memorial Day fell in the first quarter of fiscal '13 but was in the second quarter of fiscal '12. Without the Memorial Day shift and the class action lawsuit settlement, adjusted EBITDA would have increased 15.7% versus the 4.3% increase reported. Turning to the balance sheet. FIFO inventory was $37.9 million higher than the first quarter of last year and $98 million lower than the fourth quarter of fiscal '12. Relative to the first quarter of last year, the increase reflects pharmacy brand inflation as well as incremental store pharmacy inventory as a result of the new ESI scripts. Our cash flow statement results for the quarter show net cash from operating activities in the quarter as a source of $364 million as compared to a source of cash of $385 million in last year's first quarter, lower inventory receivables as well as the timing of accounts payable payments last year. Last year influenced the balance. Net cash used in investing activities for the quarter was $75.7 million versus $48.4 million last year and also includes proceeds from script file sales. During the first quarter, we relocated 2 stores, remodeled 143 stores and closed 15 stores. We have now completed and grand reopened 423 wellness remodel stores and expect to have 780 completed by fiscal '13 year end. Front end sales and the remodeled stores continue to improve above the chain average. Now let's discuss liquidity. At the end of the first quarter, we had $1.151 billion of liquidity, including $102 million of invested cash. We had no revolver borrowing outstanding and we had $125 million of outstanding letters of credit. Today, we have just under $1.2 billion of liquidity. Total debt, net of invested cash, was higher by $12.5 million from last year's first quarter. Our leverage ratio, defined as total debt less invested cash over LTM adjusted EBITDA, improved to 6.5x from 6.9x. Now let's turn to fiscal '13 guidance. We are updating our guidance based on current sales trends, including continuation of existing incremental ESI script trends, benefit of the generic wave and generic cost controls, a challenging reimbursement rate environment and continued investment in our customer loyalty program to grow sales, as well as an increase in capital expenditures. The company expects total sales to be between $25.3 billion and $25.7 billion and expects adjusted EBITDA to be between $950 million and $1.025 billion for fiscal '13. Same-store sales are expected to be in a range from a decrease of 50 basis points to up 100 basis points, which reflects the anticipated negative pharmacy sales impact of approximately 600 basis points from new generic introduction compared to the 520 basis points in our original guidance. Net loss for fiscal '13 is expected to be between $248 million and $103 million or a loss per diluted share of $0.29 to $0.13. Our fiscal '13 capital expenditure plans remained at $300 million, with $130 million allocated to remodels and $50 million for file buys. We are completing -- we are planning to complete 17 relocations and remodel 500 wellness stores. We're not planning to complete any sale leaseback transactions, and we expect to be free cash flow positive for the year. We expect to close a total of 50 stores, of which the guidance include a store lease closing provision to close 15 stores, with the balance of the stores closing on lease expiration. This concludes my portion of the presentation. I'd now like to open the line up to questions. Holly?

[Operator Instructions] And your first question comes from the line of Ed Kelly, Crédit Suisse. Edward J. Kelly - Crédit Suisse AG, Research Division: You raised guidance by more than it seems really, right? Because you have this $21 million litigation settlement in here. So can you maybe just talk about what the bigger drivers of the upside are, that you're -- that caused you to do that? Frank G. Vitrano: Ed, I mean, what we said when we released guidance in the -- at end of the fourth quarter was we thought we kept to the higher end of the range based upon our ability to continue to receive and maintain the ESI scripts, okay? And right now, we're continuing to expect to be able to retain the ESI scripts, and that drives us to the higher end of the guidance. John T. Standley: I think the other thing I've touched on too is we did a good job in the quarter on the pharmacy margin side, particularly on the cost side. And so we're continuing to work really hard to make progress with the new generics and the pharmacy margin. And I think we saw some good benefit there that was encouraging also. Edward J. Kelly - Crédit Suisse AG, Research Division: Any reason that you don't exclude the $21 million charge in the guidance? This is one-time, right? John T. Standley: Yes, you could go either way on that end, honestly. Edward J. Kelly - Crédit Suisse AG, Research Division: And then on the gross margin. I mean, you had nice gross margin this quarter. Can you maybe give us a little bit of color on how the generic benefit is playing out relative to your expectation? And what it's telling us about reimbursement rates overall? John T. Standley: Well, reimbursement rates remain, honestly, very challenging in many different directions. It's still a very difficult reimbursement rate environment. I would say on the generic side, probably, we're -- like I mentioned, I think we're probably a little better than I expected, because I think on the cost side we probably came in a little stronger or a little more efficient than we originally budgeted or forecasted when we built our plan. So I'd say we're a little bit ahead on that side of the equation at the moment. And that's -- obviously, pharmacy margin was one of the drivers in this quarter. Edward J. Kelly - Crédit Suisse AG, Research Division: Now the impact of generics is, it looks like it's probably going to double from here at some point this year. So we should think about the gross margin as more opportunity in that front the rest of the year as well, I think. Right? John T. Standley: Well, I mean, again, it's our expectation as we continue to take cost out, that we'll remain under reimbursement rate pressure. So as we've talked about all along, there's a give-and-take on this thing, unfortunately. Edward J. Kelly - Crédit Suisse AG, Research Division: Excluding that -- if we were to exclude generics, the benefit from the incremental generics that were launched, do you think your gross margin would be flat, up, down? John T. Standley: I would say down. Edward J. Kelly - Crédit Suisse AG, Research Division: You think it's down? John T. Standley: Flat to down. Frank G. Vitrano: Yes, flat... Edward J. Kelly - Crédit Suisse AG, Research Division: Flat to down? Frank G. Vitrano: Flat to down. Edward J. Kelly - Crédit Suisse AG, Research Division: And just last thing for you on the Walgreens front, can you maybe talk a little bit about what you're doing to make sure that the WAG scripts that you're getting are sticky even though -- even if there is a settlement at some point? And also, what you're doing to capture the potential incremental front end spend, and not the incremental front end spend that that customer makes when they're filling a prescription, but the other times of the month where maybe they're still going to Walgreens to do some other convenience-based trip that you potentially could capture at some point? John T. Standley: I think we're in a great position to capitalize on the opportunity here. Wellness+ is really designed to do just what we're trying to do here. So as we work with these customers and try and provide great service, we're also trying to engage them with wellness+. If we get them into wellness+, they're earning points with their scripts, which gives them the potential to earn discounts on the front end and really convert them from a pharmacy to a front end customer and hopefully make a great -- make them -- encourage them to be a great loyal customer with us going forward. Edward J. Kelly - Crédit Suisse AG, Research Division: One quick thing before I go here. Can you just remind us the customer loyalty revenue deferral adjustment that's in the EBITDA? What exactly does that relate to again? I feel like I knew this at one point. Frank G. Vitrano: Ed, that relates to an accrual or basically a deferral of points that somebody earns when they're earning up to a point level and then it's -- or revenues that when they're earning up to a point level, and then we would then have, take that revenue when they're getting the discount. So what it basically does is kind of smooths the person's purchases between -- or the revenue over the purchase stream between the time before and the time after they hit the tier level that they would get to.

And your next question comes from the line of John Heinbockel, Guggenheim Securities. John Heinbockel - Guggenheim Securities, LLC, Research Division: Couple of things. Did I hear you right, the ESI EBITDA benefit was, did you say $15 million to $20 million? Frank G. Vitrano: Yes. John Heinbockel - Guggenheim Securities, LLC, Research Division: Okay. So now why a range as opposed to an exact number? I'm curious. Frank G. Vitrano: I mean, yes, there's some -- it's not an exact science, okay? I mean, in terms of trying to identify what would be a true incremental new ESI customers because there are some switches from period to period. So -- and we try to give you some kind of our best estimate in terms of what we think it's going to be. John T. Standley: And I think there's some judgment required in how much variable cost we apply. John Heinbockel - Guggenheim Securities, LLC, Research Division: I mean, when you look at the prior quarter, and I know that was only 2 months, but it looks like there was a little bit of a step-up sequentially. Is that cost -- incremental cost going away or something else? Frank G. Vitrano: Yes. We had some incremental advertising cost here in the fourth quarter related to that. John T. Standley: And we continue to gain some customers. Frank G. Vitrano: Right. John Heinbockel - Guggenheim Securities, LLC, Research Division: Is the $15 million to $20 million a decent run rate for, assuming those settlement, into your cycle? Or do you think something, for some reason, it's not a good run rate? Frank G. Vitrano: No, I think that's probably representative. John T. Standley: And some [indiscernible] John Heinbockel - Guggenheim Securities, LLC, Research Division: When you look at -- if you've been able to track the new ESI pharmacy patients, how many of those or what percent of those have signed up for wellness+ and become card members? Or is that too hard to tell? John T. Standley: It appears to be sort of lining up with our broader numbers. So when we look at the penetration transactions, it's approaching kind of where we are with the whole thing. John Heinbockel - Guggenheim Securities, LLC, Research Division: And when you think about the -- if you think about wellness+ in this environment, particularly when you get to silver or gold, do you think that that value proposition would resonate more? How do you think about kind of stepping up either more of the visibility of that going forward? And what do you do, if anything, do you sort of think you need to do something when Walgreen launches their card in September, [indiscernible] for spending back for that? Or no, not really? John T. Standley: We're not going to give away all of our secrets, John, come on. But I think your first comment's a great one, and we are going to be out there continuing to explain to consumers the value of wellness+, the value of the tier discounts, the value of the +UPs and tying the relationship of the front end store and the pharmacy together, that's really a very critical message. And I think there's still a lot of opportunity for us to continue to educate people about the value of this program. John Heinbockel - Guggenheim Securities, LLC, Research Division: All right. And the last thing, you said the wellness+ remodels are improving and generating comps better than company average. How do they compare to your plan? Are they basically on plan? And how much better do you think they -- I know you've been -- you've done a better job of clustering them and merchandising them. Do you think we can see hundreds of basis of points of improvement from here? John T. Standley: I think we still have a best-seller opportunity to continue to grow sales in the wellness stores where the trend is very positive. They're gaining traction. But we are not yet quite to our ROI projection levels.

And your next question comes from the line of Karen Eltrich, Goldman Sachs. Karen Eltrich - Goldman Sachs Group Inc., Research Division: You mentioned that you expect to extend your Flu Shot program. Do you have a target for how many flu shots or how many immunizations you expect to administer next year? And how much do you think you can increase that? John T. Standley: Do we give a target? Frank G. Vitrano: We do not give a target. John T. Standley: Okay. I don't think we've given a target yet for the year, but we would expect another year of very significant growth. It's a good target. I don't know if we're going to give it out at some point or not, but probably not this morning. But it -- we're expecting some very significant growth in flu shots again this year. Karen Eltrich - Goldman Sachs Group Inc., Research Division: Great. And again, of course, have to, for wellness+, the topic of the day. As you talked -- you've expanded with the silver, gold and now the bronze. I mean, have you found that to be effective? And with the additional benefits, are you planning good consumer response? And as you mentioned, do you think there are ways that you can communicate this program better? Is that in store? Is that media? What can we expect in terms of communication from you this year? John T. Standley: Some of both. But I think the folks -- you can see from the penetration numbers that the folks who are in our store are basically getting it and understanding and working the program. So I think our opportunities to get out and attract additional customers whether that really requires us to get outside the store to explain the benefits of the program... Karen Eltrich - Goldman Sachs Group Inc., Research Division: How -- sorry, how -- what are you finding to be the average migration period for a person who signs up for the program and then reaches the various stages? And is that accelerating in any way? John T. Standley: I would tell you that we continue to see silver and gold customer accounts grow, which is not unexpected. I mean, if the time frame of this thing continues to develop, that should be happening, and it is. So those customers are becoming a bigger part of our total, which is exactly what we want. We want more of those loyal customers. They are our best customers. I don't know if I have an exact average time for you off the top of my head in terms of migration. Karen Eltrich - Goldman Sachs Group Inc., Research Division: Fair enough. What about percentage of silver, gold that are both using your front end and your pharmacy? John T. Standley: I feel like I'm being nonresponsive here a little bit, but given what everybody else is doing and working on their programs, we're a little close to the best with this, I know. But... Karen Eltrich - Goldman Sachs Group Inc., Research Division: But -- okay, is it increasing? John T. Standley: Yes. Yes, absolutely. Karen Eltrich - Goldman Sachs Group Inc., Research Division: Right. And what about reception to the Load2Card? John T. Standley: It's going well in the test markets and we're looking at that program very carefully, but it's been very warmly received. Frank G. Vitrano: Right. Karen Eltrich - Goldman Sachs Group Inc., Research Division: Great. And final question, just getting back to generics. I mean, you said that the profitability is exceeding your expectations. So how would you say it is doing relative to history? John T. Standley: I'd say I don't know if I can answer that. I guess, fairly, consistently maybe a touch better. I mean, we use history to make our projections so we're a little ahead of that. I guess, that's probably the best way to answer that. I would also tell you, our contracts are constructed differently today than they may have been historically. So there's some other dynamics that are in play beyond just the normal factors. Karen Eltrich - Goldman Sachs Group Inc., Research Division: And based on the data we've seen, I mean, it's fair to say that in the current quarter, you've seen an acceleration of generic penetration? John T. Standley: Yes. Frank G. Vitrano: Yes. John T. Standley: Generic penetration is up strong. And the other thing I would just mention there is that, in addition to the penetration, as drugs that came out that were single sourced become multi sourced, their cost is going to go down dramatically and reimbursement rates will follow that down. And so we do have a fairly significant negative headwind on just pharmacy sales even though profitability should be good in the back half of the year.

Your next question comes from the line of Carla Casella, JPMorgan. Carla Casella - JP Morgan Chase & Co, Research Division: I think I may have missed, did you say how many scripts that you're gaining on average per store from Express Scripts? John T. Standley: No. Frank G. Vitrano: We didn't say. What we did say though, Carla, was in terms of the total increase in script count in the first quarter, primarily -- it came primarily from ESI. Carla Casella - JP Morgan Chase & Co, Research Division: Okay. And then on the front end side, are you seeing any change in the promotional environment for seasonal merchandise? Or margins, I guess, for the seasonal merchandise this year versus last? John T. Standley: Not that I would call out, I guess. I mean, it's always competitive. I don't think it's dramatically worse. Carla Casella - JP Morgan Chase & Co, Research Division: Okay. And then, it looks to me so EBITDA would've been $300 million if around -- if we exclude the Memorial Day pay and the settlement. Is all -- are the payment settlement, that's all included in SG&A? Frank G. Vitrano: I'm sorry, Carla, what did you say? John T. Standley: The settlement? Carla Casella - JP Morgan Chase & Co, Research Division: Additional pay in the settlement amount and now with the SG&A? John T. Standley: Yes, they are included. Carla Casella - JP Morgan Chase & Co, Research Division: Okay. And then one question on reimbursement rate pressure, does that move up in lockstep as you see generics grow, or is it something that's not tied specifically to generics? John T. Standley: It is. A substantial part of it is tied to generics. I mean, basically, as you would expect, generics cost less then we get paid less for generics. So one thing that will happen is, if you look at reimbursement rates as percent to total revenues, it definitely goes down just by virtue of an increase in the generic mix. But in addition to that, as the generic drugs mature, their cost goes down. And as their cost goes down, we also get paid less. So you have those 2 dynamics kind of working on our number right now. Carla Casella - JP Morgan Chase & Co, Research Division: Okay. Okay, great. And then the wellness+ stores, is there any major concentration, are you focused on markets where you've got more older stores or underperforming stores? Or is it pretty much well spread? Frank G. Vitrano: It is spread out. Right now, it's probably in 8 or 10 kind of our key markets, and we're focusing initially on our best stores.

Your next question comes from the line of Bryan Hunt, Wells Fargo Securities. Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division: John, Frank, just to ask about generics in maybe a more direct manner with regards to your change in assumptions. Is your change in assumptions to 500 point -- basis points to 600 basis points of dilution, is that because of increased penetration assumptions? Or is it due to maybe a faster development of multi-sourcing and driving prices down faster? John T. Standley: Probably some of both. Probably some of both. I would say generic penetration is very strong, and so that's kind of good news, bad news, I guess, as it relates to this number. But also, I think we have seen a little bit better cost environment than we probably initially expected. Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division: And then, looking at the ESI script counts, would you expect some stabilization in the growth rate or in the upcoming quarters? And when do you annualize that? John T. Standley: Well, I think the sheer growth of it has slowed down to some degree. I think we're approaching a more normal level, if you will, although we're going to continue to fight to get as many customers as we can. So I think we're kind of near that point. Frank? Frank G. Vitrano: I agree, and we probably -- we'll start cycling really in the beginning or mid-December, is when we will start to cycle it. Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division: Switching gears, I'm looking at script file buys. There -- we've seen significant inflation in the price per script in the last, call it 24 months. Has that rate slowed? Or are you looking at stable kind of sequential pricing on your script file buys? Frank G. Vitrano: Bryan, I mean, really at the end of the day, it really comes down to competition, okay? It's how many people are bidding for a particular independent. And if there are 2 or 3 of the major chain guys that are bidding or a couple of supermarkets, that's what has primarily been the driver, I can't really say it's the inflation on the price per script. Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division: All right. So maybe a better way to ask it is, is the competition for file buys, does that remain robust or has that been dialed back? John T. Standley: No, it's pretty strong. Lisa C. Gill - JP Morgan Chase & Co, Research Division: And the price levels are still on that, I guess, $12, $15? Frank G. Vitrano: Yes. I mean, if we can give a range, they're really -- I mean, $10 to $20 is probably a good range to use.

Your next question comes from the line of Emily Shanks, Barclays Capital. Emily E. Shanks - Barclays Capital, Research Division: My question firstly is around the litigation expense. And I was curious, when do you expect to pay the cash payment out? I recognize it's subject to court approval. John T. Standley: Yes. I mean, at this point, we do have to go through court approval and probably be in 2 payments. One, probably late summer or so, and then one in the probably the end of the third, beginning of fourth quarter. Emily E. Shanks - Barclays Capital, Research Division: Terrific. And then my other question is, just around the reimbursement rate environment. I know you highlighted how it relates to generics, et cetera. But I was just curious, how would you characterize the reimbursement rate environment? Are you seeing stability intra-quarter, and what's your outlook for that? John T. Standley: I think the reimbursement rate environment, it just -- I think it's going to stay very difficult. There's a number of moving parts. I mean, we have a lot of states, I guess, working on their reimbursement rates. Obviously, we have a substantial merger in the marketplace that's going to play out over time. There's always some amount of contracts up for renewal in our business. So we continue -- we expect to continue to see reimbursement rate pressure. And I often look at it on a year-over-year basis. And on a year-over-year basis, it's still declining.

Your next question comes from the line of Joe Stauff, Susquehanna. Joseph Stauff - Susquehanna Financial Group, LLLP, Research Division: You'd covered a lot of territory, but I just wanted to just clarify a few things. One, obviously, the reimbursement pressure has always been a function of this industry. And your comments on it about it continue to be challenging, is it kind of the same as or is it worsening? John T. Standley: I'd say the same as. Joseph Stauff - Susquehanna Financial Group, LLLP, Research Division: And can you provide, I guess, an update just on the same-store trends for the remodeled stores pre and post sort of completion? Are you seeing a significant step-up in that same-store comp on those stores in particular and how has that been tracking? John T. Standley: Yes. We've definitely seen an increase pre versus post, and we've also been measuring those stores against the rest of the chain, right? And they're -- those stores are exceeding the chain comp as well. Joseph Stauff - Susquehanna Financial Group, LLLP, Research Division: Got it. And then finally, there's obviously a lot of discussion on the higher profits in generics and so forth. But can you comment, I guess, just on your front end opportunity? I mean, the tools that you are using so to speak to kind of convert what is your stickier traffic that appears on your pharmacy and to front end traffic is the wellness program remodels and advertising. How much, I guess, utility or effectiveness do you still have with these tools? Is there a lot more opportunity in terms of the leverage that they provide? Can you comment on that? John T. Standley: Yes, I think -- yes, I would describe it this way, I think. And I don't -- in general terms, what we've done I think is put in a pretty powerful economic opportunity for our consumer to be a loyal customer with us and move between the front and the back of the store, either direction. Whether you're a good pharmacy customer or good front end customer, I think you're incented to try right now economically to bring your business to us with the tier discounts. We've also used the +UP program to just try and drive additional footsteps into the store. The opportunity that we're working on right now is really using the information from this program to really get at where the incremental opportunities are. I think that is a substantial opportunity that we are very early in the stages of.

Your next question comes from the line of Karru Martinson, Deutsche Bank. Karru Martinson - Deutsche Bank AG, Research Division: When you guys talk about profitability on generics exceeding expectations, the contracts being constructed differently, is this something that we should be looking at kind of normalizing this year? Or would that be something that gets adjusted whenever those contracts come up for renewal or renegotiations? John T. Standley: It's -- I think it's -- the structure of those contracts are going to stay the way they are. And we've talked about this a lot. I don't want to get this call going too far sideways here. But we have certain contracts, there are more traditional contracts that, on the new generic, we tend to make a good amount of profitability during the exclusivity period. We have other contracts that are structured in a way where we actually don't make as much during exclusivity period but make more of our profitability when the drug goes multi-source. And we sort of ended up in a spot where we kind of have a blend of those 2 types of contracts. So that's sort of one piece of the puzzle, but the other piece of the puzzle, I think, relative to what our expectations were is just there's probably been more opportunity on the cost side on some of these drugs than we expected when we did our original projection. Karru Martinson - Deutsche Bank AG, Research Division: Okay. And now when you give the free cash flow positive guidance for the year, does that include the $20.9 million payment or is that x that? Frank G. Vitrano: It includes it, Karru. Karru Martinson - Deutsche Bank AG, Research Division: Okay, it includes it. And you noted that both on the remodels and the wellness+ conversion, you're seeing better than store average. I mean, is there any kind of granularity is this -- that you can provide there? Are you 100 basis points better? 50 basis points better? Frank G. Vitrano: It's more than 100, and we continue to -- the trajectory of it is encouraging so far. Karru Martinson - Deutsche Bank AG, Research Division: And given the success and the traction that you're getting there, I mean, is there an ability for you guys to ramp that program up? Or do you feel that you're kind of hitting the best conversion opportunities right now? John T. Standley: I think we are operating at the level that our organization can handle right now. I think we're doing what we are organizationally capable of. Karru Martinson - Deutsche Bank AG, Research Division: And you mentioned earlier, obviously, there's a M&A activity going on with Walgreens. Is that something that you guys have looked at as well and kind of what's your view on that front? John T. Standley: We're very focused on the opportunity we have with our existing assets. That's our primary focus.

And your next question comes from the line of Mark Wiltamuth, Morgan Stanley. Mark Wiltamuth - Morgan Stanley, Research Division: John, any update on the AMP situation and maybe tell us how things are going with some of the states out there on reimbursement rates in Medicaid? John T. Standley: Yes. One of the probably steepest declines we've had over the last couple of years has been in the Medicaid area. So there's a lot of states that are working on reimbursement rates and changing the way they come to market to us. So there's been a fair amount of activity there. We see a number of states migrating towards managed Medicaid, where they're actually using a PBM to take over their Medicaid business. So we have a fair amount of that activity going on. So there's a number of different sort of things happening that have made that business much more difficult over the last few years. In terms of AMP, basically where we are right now is there's a process under way to formulate rules for AMP, and that process is ongoing. And right now, although CMS could implement AMP without those rules, it's our expectation that they won't. And so right now, it's still kind of in the formulation phase. Mark Wiltamuth - Morgan Stanley, Research Division: Okay. And looking over at the Walgreens [indiscernible] deal, there's chatter that Walgreens is going to be able to do better on sourcing costs. Do you think this transaction, in any way, affects Rite Aid? Does that change your world at all? John T. Standley: I mean, I guess, I would say that if they somehow dramatically reduce their sourcing cost and took those savings to market to somehow lower price or something, yes, that would put pressure on us. But otherwise, I'm not sure I can point to something immediate. Mark Wiltamuth - Morgan Stanley, Research Division: Okay. And I guess there are few comments here on -- much of the 3% volume gain for prescriptions in the quarter was Express. I think in the last quarter, you said it was around 2%. Is it still running that range or is it almost close to the 3%? John T. Standley: It's higher than the 2%.

Your next question comes from the line of Mary Gilbert, Imperial Capital. Mary Ross Gilbert - Imperial Capital, LLC, Research Division: Just wanted to follow up on the gains that you've gotten from Express Scripts. I just wanted to confirm but you're thinking that it's pretty sticky, the gains that you've already gotten and then that's why we could get to the higher end of the range of guidance. Is that what you're saying? John T. Standley: No. I think we're saying the longer -- we don't know when the dispute might be resolved. So each quarter that goes by, we've gotten those scripts into our number, and that's really why we're bringing up the low end of the range of the guidance. If the dispute ends, we know there's going to be a lot of these scripts at risk. So... Mary Ross Gilbert - Imperial Capital, LLC, Research Division: Okay. Oh, I thought maybe, you'd changed your perspective on that. John T. Standley: Yes, it'll be -- I mean, it will be a competition. Mary Ross Gilbert - Imperial Capital, LLC, Research Division: Okay. Second of all, with Walgreens coming out with their loyalty card, it sounds like you guys are working on an initiative to launch or -- like another iteration program. Is that true? John T. Standley: Well, I mean, we continue to evolve our program and continue to add features and functionality to it. We think it's a great program. So yes, that's where we are. Mary Ross Gilbert - Imperial Capital, LLC, Research Division: Okay. Are you planning to launch something sort of right around that launch? John T. Standley: I think I said before, we can't give away all of our secrets. Mary Ross Gilbert - Imperial Capital, LLC, Research Division: Okay. The other thing that I just wanted to verify also when you talked about the cost and the benefit that you're getting on the gross margin side with the generic, is it the cost in the purchasing or is there something else that you... John T. Standley: Yes, it was cost in the purchasing. Mark Wiltamuth - Morgan Stanley, Research Division: Okay, great. And then with regard to dark rent, where are we ending up this year? Frank G. Vitrano: Right now, we're forecasting, Mary, about $85 million. Mary Ross Gilbert - Imperial Capital, LLC, Research Division: Okay. Okay, great. And then do we see that dropping down to like $75 million? Or how would we look at that looking out to next year? Frank G. Vitrano: I think, Mary, assuming no more -- if we don't have a dramatic increase to our store activity, we get a drop about $5 million to $8 million a year. Mary Ross Gilbert - Imperial Capital, LLC, Research Division: $5 million to $8 million. Okay, perfect. And then with regard to free cash flow this year, is that number sort of in the 0 to $50 million range or $50 million to $100 million range? Frank G. Vitrano: Probably -- yes, I would say probably north of $50 million. Mary Ross Gilbert - Imperial Capital, LLC, Research Division: North of $50 million? Frank G. Vitrano: Yes. Mary Ross Gilbert - Imperial Capital, LLC, Research Division: Okay. And how should we look at working capital? Frank G. Vitrano: Probably as a slight use. John T. Standley: Holly, this will be our last -- we're going to take one more question and then we're going to be done.

And your next question comes from the line of Jason DeRise, UBS. Jason DeRise - UBS Investment Bank, Research Division: Just wanted to come back to the volumes that you're picking up from Express Scripts. How -- in that $15 million to $20 million profit, what are you allocating to sort of the front of the stores? Is that literally just the pharmacy benefit? Frank G. Vitrano: That's the pharmacy benefit. Jason DeRise - UBS Investment Bank, Research Division: Okay. And then I guess in terms of you said that you pick up in terms of the wellness+ conversion sort of in line with the store at the beginning of the Q&A. How -- if they're to extend actually in the front of the store once they convert, is that also in line or are they signed up but not as active as the rest of your members? John T. Standley: So the short answer is it looks like it's in line. The longer answer is, it looks like some of these folks, some percentage of these folks actually shop the front of our store before they became our pharmacy customer. So chew on that for a while. Jason DeRise - UBS Investment Bank, Research Division: Okay, okay. And then I guess in general just with the front of the store trend, I mean, is there anything that maybe you can point to that you feel like you can improve on here? Just -- it doesn't seem like the front of the stores performing as well as it did at the start of the year and it sort of faded. And I know there's some weather issues and timing issues, but is there anything that you can point to that to talk about that trend? John T. Standley: Well, I think we are comping around some tougher numbers from last year the last 2 months. So our 2-year stacked comps are still pretty solid. Other than that, I spend -- I hate to even talk about weather. So -- I mean, that's probably the single biggest thing I could point to. Jason DeRise - UBS Investment Bank, Research Division: And then I guess in terms of the front of store gross margins, is there anything that you're doing there to, in terms of your markups or anything like that, to either drive the sales further? Or are you just kind of holding steady and assuming that it's going to pick back up? John T. Standley: Really, we just continue to execute our programs. I mean, I think our results here over the last several quarters show I think we're working on the right things. So it's not really just only about a markdown spend. We continue to try and improve the experience in the store. And again, as we talked about earlier, we're going to continue to push the value of wellness+ and what it means to customers. And the other area that continues to seem to get traction with consumers is private label. And so we're going to continue to show good value with our private label program. Jason DeRise - UBS Investment Bank, Research Division: Okay. Just as a very last quick one, could you comment on the quarter if your front end store gross margin was up, down or flat? John T. Standley: It was down. Frank G. Vitrano: The dollars were up and the rate was down. John T. Standley: Okay, everyone, thanks for joining us, and we will talk to you soon. Thank you. Frank G. Vitrano: Thank you.

Thank you for your participation in today's Rite Aid Conference Call. You may now disconnect.