On Rite Aid and Halloween…

Halloween’s just three weeks away (and I’m sure after four weeks of market mayhem, we can all use some sickly sweet treats). But just in case you forgot, Rite Aid (RAD) issued this press release on Wednesday to remind people that Halloween was a good time to cut loose:

“Since Halloween falls on a Friday, we are expecting customers will party this year,” said Steve Moss, Rite Aid seasonal category manager. With the financial stress of recent weeks, Moss said he believes many Americans will be dying to dress up, spend a night in someone else’s skin and have some fun.

By shear coincidence, that same day, Rite Aid put out its 10-Q, which had some truly scary stuff in it. One of the big problems is that the stock is trading below a buck — 53 cents this morning — which puts it in danger of being delisted and prompted a wide range of new warnings in the filing, including:

In addition, delisting of our common stock on the NYSE would constitute a “fundamental change” under the indenture governing our 8.5% convertible notes due 2016 (the “Convertible Notes”). If such a fundamental change occurs, holders of the Convertible Notes will be entitled to require us to repurchase their Convertible Notes, or any portion of the principal amount thereof at a price equal to 100% of the principal amount of the Convertible Notes to be repurchased, together with accrued interest…We can give no assurance that we would be able to obtain such financing, on favorable terms, or at all, or that we will be permitted to repurchase the Convertible Notes under our other debt instruments.

There were also new sharp warnings about the company’s highly leveraged position. While the company has been warning about this for awhile, the details that it provides in the filing are much more extensive, and, let’s call it what it is here: scary. We last footnoted Rite Aid at the start of the year, when Contributing Editor Wendy Fried noted the lack of toilet paper on store shelves in her Manhattan neighborhood.

Oh — and speaking of drug store chains, we couldn’t let pass yesterday’s announcement that the SEC had charged two former Duane Reade executives of fraud. Though I haven’t read the whole complaint, the press release outlines a series of fraudulent transactions designed to pump up revenues and earnings to meet Wall Street estimates and reduce expenses — classic tools in the fraud toolbox. DuaneReade was an early visitor to the site when we footnoted Cuti’s extreme compensation and unusually generous stock options.