NEW YORK - Rite Aid Corp. on Thursday reported a smaller second-quarter loss than a year ago as it cut expenses, but the nation's third-largest drugstore operator lowered its expectations for the fiscal year due to the weak economy and high unemployment.

Rite Aid said economic conditions have hurt its sales of nonpharmacy items like food and cosmetics because customers looked harder for bargains and bought more items that were on sale. It said rivals spent more money on promotions - a move Rite Aid is countering with a new rewards program - and profit margins at pharmacies fell due to lower reimbursement rates.

The company said those trends are likely to continue through the holiday season. In heavy afternoon trading, Rite Aid shares fell 24 cents, or 12.3 percent, to $1.71.

The Camp Hill, Pa., company said it lost $120.4 million, or 14 cents per share, after preferred dividends in the three months ended Aug. 29. That compares with a loss of $227.4 million, or 27 cents per share, a year ago.

Analysts expected a larger loss of 16 cents a share for the latest quarter, according to Thomson Reuters.

Revenue fell 3 percent to $6.3 billion from $6.5 billion a year ago and missed Wall Street estimates of $6.4 billion. The company has closed more than 100 stores over the last year, including 13 in the latest quarter.

For the full year ending in February, Rite Aid now expects to lose $390 million to $615 million, or 48 cents to 74 cents per share. In June, it projected a loss of $265 million to $490 million, or 33 cents to 59 cents per share. It cut its revenue forecast to a range of $25.7 billion to $26.2 billion from $26.3 billion to $26.7 billion.

Analysts expect a loss of 47 cents per share and $26.09 billion in revenue.

Rite Aid said it will soon start testing a new customer loyalty program that will emphasize pharmacy sales. The program will be launched in full next year and the company said it expects the new program will boost its sales. The company already offers discounts on prescription drugs and store brand products through its Rx Savings Card program.

In the second quarter, Rite Aid lowered its selling, general and administrative expenses to $1.65 billion from $1.78 billion a year ago, and also reported lower lease termination and impairment charges, and a smaller loss on debt modification and retirements.

Rite Aid said its same-store sales fell 1.1 percent for the quarter, with front end sales down 4.9 percent and pharmacy revenue rising 0.8 percent at those stores. Same-store sales, or sales at locations open for at least a year, are seen as a key measurement of retailer health.

For fiscal 2010, the company expects same-store sales to come in between a 1 percent decrease and a 1 percent increase. Previously Rite Aid said those sales would rise 0.5 percent to 2.5 percent.

Raymond James analyst John Ransom said the quarter was "mixed," as Rite Aid's loss was smaller but gross margins were weaker than he anticipated, and he did not expect such a large cut to its forecasts.

At the end of the quarter, Rite Aid ran 4,812 stores in 31 states and Washington, D.C. During the second quarter, it closed 16 stores, opened three, relocated 10 and remodeled one location. It has closed 102 stores in the last six months and plans to close about 15 more locations by the end of February.

It trails rivals Walgreen Co. and CVS Caremark Corp., which each have around 7,000 stores.

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