Rite Aid (RAD) Incurs Loss In Q1, Revenues Decline Y/Y

Rite Aid Corporation (NYSE:RAD) incurred first-quarter fiscal 2020 adjusted loss from continuing operations of 14 cents per share against the Zacks Consensus Estimate of earnings of 2 cents. In the year-ago quarter, the company reported adjusted earnings of 2 cents per share.

Notably, the bottom line was hurt by a decline in adjusted EBITDA coupled with higher income tax expenses, somewhat offset by lower depreciation and amortization expense as well as lease termination and impairment charges.

Management stated that quarterly results lagged expectations owing to prescription reimbursement rate pressure in the Retail Pharmacy Segment. Also, margin compression in the company’s Pharmacy Services Segment weighed on the company’s performance.

However, operating efficiency in the Retail Pharmacy Segment along with higher Medicare Part D revenues and prescription count sales growth remain impressive. Management is also optimistic about its drug purchasing agreement with McKesson Corporation (NYSE:MCK), which is likely to reinforce the company’s Retail Pharmacy business. Additionally, this Zacks Rank #2 (Buy) company remains confident about its ‘Path to the Future’ transformation initiative. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Q1 in Detail

Revenues dipped 0.3% to $5,372.6 million, almost in line with the Zacks Consensus Estimate. During the quarter, the Retail Pharmacy segment revenues slipped 0.8% owing to lower store count, somewhat offset by higher same store sales. At the Pharmacy Services segment, revenues edged up 1.5% owing to higher Medicare Part D revenues.

Retail Pharmacy same-store sales inched up 1.4% owing to a 2.3% rise in pharmacy sales and 0.3% decrease in front-end sales. Excluding cigarettes and tobacco products, front-end same store sales inched up 0.3%. Pharmacy sales included a negative impact of nearly 207 basis points (bps) from the introduction of new generic drugs. Further, prescription count at same store sales rose 3.7%. Prescription sales constituted 66.9% of total drugstore sales. Notably, the company delivered the fourth straight quarter of same-store prescription count growth.

Rite Aid’s adjusted EBITDA fell 20.1% year over year to $110.3 million, with adjusted EBITDA margin contraction of 50 bps to 2.1%. This downturn was due to lower adjusted EBITDA at the Retail Pharmacy and Pharmacy Services segments, offset by improvement in adjusted EBITDA selling, general and administrative (“SG&A”) expenses. Improvement in SG&A was due to reduction in salaries and benefits, more than offset the decrease in Transition Services Agreement (TSA) fee income from Walgreens Boots Alliance (NASDAQ:WBA) .

Further, adjusted EBITDA at the Retail Pharmacy Segment totaled $84 million, depicting a 19.2% decline from the prior-year quarter. At the Pharmacy Services Segment, the metric amounted to $26.3 million, reflecting 22.4% decline.

Store Update

Rite Aid remodeled 27 stores in the fiscal first quarter, bringing the company’s total wellness-store count to 1,787. Moreover, it opened one while shuttered 4 stores, taking the total store count to 2,466 as of Jun 1, 2019.

Financial Status

Rite Aid ended the quarter with cash and cash equivalents of approximately $190.5 million, long-term debt (net of current maturities) of $3,582 million and total shareholders’ equity of $1,035.2 million.

Further, the company used cash from operating activities of $51.2 million in the fiscal first quarter.

Outlook

Rite Aid, which shares space with Herbalife Nutrition Ltd. (NYSE:HLF) , reaffirmed its outlook for fiscal 2020. This view includes the assumption of persistent decrease in prescription reimbursement rates, somewhat compensated with higher prescription count coupled with improvements in drug costs and SG&A expenses.

Rite Aid continues to project sales of $21.5-$21.9 billion for fiscal 2020 along with same store sales growth projection of 0-1% over fiscal 2019. Moreover, the company still anticipates adjusted EBITDA to be between $500 million and $560 million for fiscal 2020.

Further, it estimates net loss of $170-$220 million. Management envisions the bottom line between adjusted loss of 14 cents and earnings of 72 cents per share. Capital expenditures are likely to be roughly $250 million.

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