Company revises full-year guidance upward

CAMP HILL, Pa. — Rite Aid Corp.’s third quarter sales climbed 12% to $6.12 billion, but adjusted earnings slipped to 40 cents a share from 54 cents a year earlier, hurt by elevated expenses. Still, both sales and earnings beat Wall Street’s estimates.

Heyward Donigan

Net income for the quarter ended November 28 was $4.3 million, down from 52.3 million  primarily due to a $55.7 million gain on debt retirements last year. Adjusted net income this year was $21.6 million, and adjusted EBITDA was $137.4 million, or 2.3% of revenues.

“We are pleased with our third quarter performance as we continue to grow our business and achieve major physical and digital milestones through our RxEvolution strategy,” said president and chief executive officer Heyward Donigan. “We officially launched our new brand and logo, made substantial progress in evolving our merchandise mix to an assortment that best supports whole health, refreshed over 700 store exteriors, opened the first three new Store of the Future prototypes and began the integration of our two legacy PBMs. On the digital side, we launched a completely modernized Rite Aid online experience and mobile app and are set to launch our new member portal at Elixir.”

“Our teams are working hard to serve our customers during these challenging times,” added Donigan. “We have administered over one million COVID-19 tests and will be partnering with the CDC to help administer COVID-19 vaccines in our communities. I am so proud of our 50,000 associates and the strategic progress we’re making in our journey to revolutionize our industry and elevate our role as an indispensable healthcare provider. We are accelerating the key initiatives that support our strategy, and we will continue to deliver the operational excellence needed to achieve strong results as we generate cash flow, reduce debt and improve our leverage ratio.”

Rite Aid revised its full year fiscal 2021 guidance upward, raising its revenue range to $23.9 billion to $24.2 billion from $23.5 billion to $24 billion. It forecast same-store sales growth of 3.5% to 4.5%, up from 3% to 4%, and adjusted earnings per share of 45 cents to 85 cents. It had projected EPS to range from a loss of 67 cents to a profit of 9 cents.

The increase in third quarter revenues was driven by growth in both the Retail Pharmacy and Pharmacy Services segments. The decline in net income, which was partially due to a decrease in adjusted EBITDA, was partly offset by lower restructuring-related costs and a higher gain on sale of assets resulting from the sale-leaseback of the company’s Perryman, Md. distribution center. Adjusted EBITDA was down 13% from $158.1 million in the year-ago period.

Retail Pharmacy Segment revenues from continuing operations increased 5.1 percent. Same store sales from continuing operations for the third quarter increased 4.3 percent, consisting of a 6.1 percent increase in pharmacy sales and a 0.7 percent decrease in front-end sales. Front-end same store sales, excluding cigarettes and tobacco products, increased 0.3 percent. Front-end sales benefited from increases in immunity, first aid and paper products, offset by decreases in over-the-counter products related to cough cold and flu and Halloween candy sales. The company increased its retail script share1, and also increased its front-end market share in both dollars and in unit sales2. The number of prescriptions filled in same stores, adjusted to 30-day equivalents, increased 3.1 percent, driven by increases in maintenance prescriptions, supported by personalized Medication Therapy Management interventions and home deliveries. Flu immunizations increased by 28 percent, which offset a 19 percent decline in acute scripts related to cough cold and flu. In total, acute prescriptions decreased by 1.9 percent.

Retail Pharmacy Segment adjusted EBITDA from continuing operations was $88.6 million, or 2.2 percent of revenues, for the third quarter compared to last year’s third quarter adjusted EBITDA from continuing operations of $108.6 million or 2.8 percent of revenues. Gross profit dollars increased due to increased revenues, but gross margin rate declined due to reimbursement rate pressure and the impact of the reduction in over-the-counter front-end sales. Selling, general and administrative (SG&A) expenses improved as a percentage of sales, but SG&A dollars increased due to incremental costs associated with the COVID-19 pandemic and the absence of Transition Services Agreement income in the current quarter, as services under that agreement have been completed.

Pharmacy Services Segment revenues were $2.1 billion, an increase of 29.2 percent. The increase in revenues was primarily the result of an increase of 252,000 Medicare Part D members.

Pharmacy Services Segment adjusted EBITDA from continuing operations was $48.8 million, or 2.3 percent of revenues, and was flat to last year’s third quarter adjusted EBITDA from continuing operations of $49.5 million, or 3.1 percent of revenues. The increase in revenues was offset by a decline in adjusted EBITDA as a percent of revenues. The Pharmacy Services Segment benefited from reductions in payroll and indirect spend overall, but these benefits were offset by increased drug costs within Medicare Part D and SG&A spend related to an increase in Medicare Part D members. The company expects Medicare Part D membership to decrease in fiscal 2022, but expects these members to be more profitable.