Rite Aid finishes fiscal year on positive note

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CEO John Standley cites impact of lengthy merger process

Rite Aid finishes fiscal year on positive note
CAMP HILL, Pa. — Despite declines in net income, Rite Aid Corp. posted increased sales and exceeded Wall Street’s adjusted earnings per share forecast for its fiscal 2017 fourth quarter and year.

Chairman and chief executive officer John Standley, however, noted that the ongoing regulatory review of Rite Aid’s deal to be acquired by Walgreens Boots Alliance (WBA) — announced almost 18 months ago — is taking a financial toll on the drug chain.

Rite Aid said Tuesday that for its 14-week fourth quarter ended March 4, the company had a net loss of $21.1 million, or 2 cents per diluted share, compared with net earnings of $65.6 million, or 6 cents per diluted share, a year earlier. Operating results decreased mainly because of  a decline in adjusted EBITDA (earnings before income, taxes, depreciation and amortization), partially offset by a higher LIFO credit, according to Rite Aid.

Adjusted EBITDA totaled $264.3 million, or 3.1% of revenue, for the fourth quarter versus $383 million, or 4.6% of revenue, in the prior-year period.

Financial analysts, on average, projected a net loss (adjusted) of 2 cents per share for Rite Aid’s fourth quarter, with estimates ranging from a net loss of 9 cents per share to earnings of 3 cents per share, according to Thomson Reuters.

For the 53-week fiscal year, net income came in at $4.1 million, or $0 per diluted share, compared with $165.5 million, or 16 cents per diluted share, in fiscal 2016. Rite Aid said the declined operating results stem primarily from a decrease in adjusted EBITDA and a rise in amortization expense in the Pharmacy Services Segment, partially offset by lower income tax expense, a $33.2 million loss on debt retirement in the prior year and lower interest expense.

In fiscal 2017, adjusted EBITDA was nearly $1.14 billion, or 3.5% of revenue, versus $1.4 billion, or 4.6 percent of revenue, for fiscal 2016.

Wall Street’s consensus full-year estimate was for adjusted EPS of 4 cents, with projections running from a net loss of 3 cents per share to EPS of 8 cents, according to Thomson Reuters.

“We remain confident that the completion of our proposed merger with Walgreens Boots Alliance is in the best interest of Rite Aid shareholders, customers and associates. However, despite our team’s continued focus on growing our business, the extended duration of the merger process is having a negative impact on our results,” Standley said in a statement.

WBA and Rite Aid “continue to be actively engaged” in discussions with the Federal Trade Commission on the merger and are working to complete the transaction by July 31, Rite Aid reported. The deal, which was amended earlier this year, still must be approved by Rite Aid shareholders.

“In addition, we continue to face reimbursement rate challenges that we have been unable to offset with drug cost reductions,” Standley added. “As we remain actively engaged in discussions with the Federal Trade Commission to gain regulatory approval for the merger, we are also taking steps to review our ongoing strategy, reduce costs and make necessary changes to our business to improve our performance going forward.”

On the sales side, fiscal 2017 fourth-quarter revenue rose 3.3% to $8.54 billion from $8.27 billion a year ago. Retail Pharmacy Segment sales totaled $7.12 billion, up 4.3% from $6.83 billion in the 2016 quarter. Rite Aid attributed the gain mainly to the quarter’s extra week, partially offset by decreased same-store sales. Sales in the Pharmacy Services Segment, including the EnvisionRx PBM, declined 1.3% year over year to $1.51 billion from $1.53 billion.

Same-store sales for the 2017 quarter fell 3%, reflecting declines of 0.3% in the front end and 4.3% in the pharmacy. Rite Aid said comparable pharmacy sales included a negative impact of 246 basis point from the introduction of new generic drugs. Prescription count, adjusted to 30-day equivalents, dipped 0.3% year over year. Prescription sales represented 67.1% of overall drug store sales in the quarter.

For fiscal 2017, sales climbed 6.9% to nearly $32.85 billion from $30.7 billion in 2016. Retail Pharmacy Segment revenue was virtually flat, at about $26.8 billion, versus the previous year mainly because of the extra week in 2017, offset by a decrease in comparable-store sales. Sales in the Pharmacy Services Segment, acquired on June 24, 2015, were $6.4 billion.

Full-year same-store sales were down 2.2%, including a 0.2% uptick in the front end and a 3.2% decrease in the pharmacy, which reflected a negative impact of 182 basis points from new generics. Comp-store prescriptions filled, adjusted to 30-day equivalents, inched up 0.1%. Prescription sales accounted for 68.3% of total drug store sales for the year.

Rite Aid said it opened 12 stores, remodeled 348 stores, relocated 24 stores, expanded two stores, acquired three stores and closed 40 stores in fiscal 2017. The company’s RediClinic subsidiary also opened 21 clinics. The drug chain finished the year with 4,536 drug stores, compared with 4,561 at the end of fiscal 2016.


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