Rite Aid Reports Fiscal 2018 Second Quarter Results


• Second Quarter Net Income of $170.7 Million or $0.16 Per Diluted Share, Compared to the Prior Year Second Quarter Net Income of $14.8 Million or $0.01 Per Diluted Share

• Second Quarter Adjusted Net Loss Per Diluted Share of $0.01, Compared to the Prior Year Second Quarter Adjusted Net Income Per Diluted Share of $0.03

• Adjusted EBITDA of $213.3 Million for the Second Quarter, Compared to the Prior Year Second Quarter Adjusted EBITDA of $312.7 Million
 

CAMP HILL, Pa. (Sept. 28, 2017) - Rite Aid Corporation (NYSE: RAD) today reported operating results for its second fiscal quarter ended September 2, 2017.

For the second quarter, the company reported revenues of $7.7 billion, net income of $170.7 million, or $0.16 per diluted share, Adjusted net loss of $15.6 million, or $0.01 per diluted share and Adjusted EBITDA of $213.3 million, or 2.8 percent of revenues.

"While our performance for the quarter reflects a challenging reimbursement rate environment and the effects of an extended merger and asset sale process, securing regulatory clearance for the amended asset sale agreement with Walgreens Boots Alliance gives us a clear path forward to realize the benefits of the transaction and implement our plans to deliver improved results. In addition, we've announced this morning that Kermit Crawford - a proven leader with extensive retail pharmacy experience - is joining Rite Aid as president and chief operating officer to further strengthen our leadership team," said Rite Aid Chairman and CEO John Standley.

"As we work to complete the asset sale, which will reduce our leverage and provide greater financial flexibility to invest in our business, we'll also focus on generating momentum for our business by meeting the health and wellness needs of our customers and patients while delivering an outstanding experience in our stores."

Second Quarter Summary

Revenues for the quarter were $7.7 billion compared to revenues of $8.0 billion in the prior year's second quarter, a decrease of $350.9 million or 4.4 percent. Retail Pharmacy Segment revenues were $6.3 billion and decreased 3.4 percent compared to the prior year period primarily as a result of a decrease in same store sales and reimbursement rates. Revenues in the company's Pharmacy Services Segment were $1.5 billion and decreased 8.7 percent compared to the prior year period, due to an election to participate in fewer Medicare Part D regions.

Same store sales for the quarter decreased 3.4 percent over the prior year, consisting of a 4.6 percent decrease in pharmacy sales and a 0.9 percent decrease in front-end sales. Pharmacy sales included an approximate 189 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores, adjusted to 30-day equivalents, decreased 1.8 percent over the prior year period due in part, to exclusion from certain pharmacy networks that Rite Aid participated in the prior year. Prescription sales accounted for 67.8 percent of total drugstore sales, and third party prescription revenue was 98.3 percent of pharmacy sales.

Net income was $170.7 million or $0.16 per diluted share compared to last year's second quarter net income of $14.8 million or $0.01 per diluted share. The improvement in operating results was due primarily to receipt of the $325.0 million merger termination fee from Walgreens Boots Alliance, Inc. (Nasdaq: WBA) for the termination of the merger agreement, effective June 28, 2017, partially offset by a decline in Adjusted EBITDA and higher income tax expense.

Adjusted net loss was $15.6 million or $0.01 per diluted share compared to last year's second quarter adjusted net income of $36.4 million or $0.03 per diluted share. The decline in Adjusted net income was due to a decline in Adjusted EBITDA, partially offset by a reduction in adjusted income tax expense and depreciation and amortization expense.

Adjusted EBITDA (which is reconciled to net income in the attached tables) was $213.3 million or    2.8 percent of revenues for the second quarter compared to $312.7 million or 3.9 percent of revenues for the same period last year. The decline in Adjusted EBITDA was due to a decrease of $98.6 million in the Retail Pharmacy Segment. The decrease in the Retail Pharmacy Segment EBITDA was primarily driven by a decline in pharmacy gross profit, which was due to a decline in reimbursement rates, which the company was unable to fully offset with generic purchasing efficiencies and lower script counts. The decline in pharmacy gross profit was partially offset by good cost control. Adjusted EBITDA in the Pharmacy Services Segment was flat compared to the prior year.

In the second quarter, the company opened 1 store, relocated 1 store, remodeled 54 stores and expanded 1 store, bringing the total number of wellness stores chainwide to 2,532. The company closed 17 stores, resulting in a total store count of 4,507 at the end of the second quarter.

Rite Aid is one of the nation's leading drugstore chains with 4,507 stores in 31 states and the District of Columbia. Information about Rite Aid, including corporate background and press releases, is available through Rite Aid's website at www.riteaid.com.

Conference Call Broadcast

Rite Aid will hold an analyst call at 8:30 a.m. Eastern Time today with remarks by Rite Aid's management team. The call will be simulcast via the internet and can be accessed at www.riteaid.com in the conference call section of investor information. Slides related to materials discussed on the call will also be available. A playback of the call will be available on both sites starting at 12 p.m. Eastern Time today. A playback of the call will also be available by telephone beginning at 12 p.m. Eastern Time today until 11:59 p.m. Eastern Time on Sept. 30, 2017. The playback number is 1-855-859-2056 from within the U.S. and Canada or 1-404-537-3406 from outside the U.S. and Canada with the eight-digit reservation number 72531385.

Cautionary Statement Regarding Forward Looking Statements

Statements in this release that are not historical, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements regarding the expected timing  of the closing of the sale of stores and assets to WBA; the ability of the parties to complete the sale and related transactions considering the various closing conditions; the outcome of legal and regulatory matters in connection with the sale of store and assets of Rite Aid to WBA; the expected benefits of the transactions such as improved operations, growth potential, market profile and financial strength; the competitive ability and position of Rite Aid following completion of the proposed transactions; the ability of Rite Aid to implement new business strategies following the completion of the proposed transactions and any assumptions underlying any of the foregoing. Words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," and "will" and variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, our high level of indebtedness and our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our debt agreements; general economic, industry, market, competitive, regulatory and political conditions; our ability to improve the operating performance of our stores in accordance with our long term strategy; the impact of private and public third-party payers continued reduction in prescription drug reimbursements and efforts to encourage mail order; our ability to manage expenses and our investments in working capital; outcomes of legal and regulatory matters; changes in legislation or regulations, including healthcare reform; our ability to achieve the benefits of our efforts to reduce the costs of our generic and other drugs; risks related to the proposed transactions, including the possibility that the transactions may not close, including because a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transactions, or may require conditions, limitations or restrictions in connection with such approvals, the risk that there may be a material adverse change of Rite Aid, or the business of Rite Aid may suffer as a result of uncertainty surrounding the proposed transactions; risks related to the ability to realize the anticipated benefits of the proposed transactions; risks associated with the financing of the proposed transaction; disruption from the proposed transaction making it more difficult to maintain business and operational relationships; the effect of the pending sale on Rite Aid's business relationships (including, without limitation, customers and suppliers operating results and business generally; risks related to diverting management's or employees' attention from ongoing business operations; the risk that Rite Aid's stock price may decline significantly if the proposed transaction is not completed; significant transaction costs; unknown liabilities; the risk of litigation and/or regulatory actions related to the proposed transactions; potential changes to our strategy in the event the proposed transactions do not close, which may include delaying or reducing capital or other expenditures, selling assets or other operations, attempting to restructure or refinance our debt, or seeking additional capital, and other business effects. These and other risks, assumptions and uncertainties are more fully described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K, and in other documents that we file or furnish with the Securities and Exchange Commission, which you are encouraged to read. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward- looking statements, which speak only as of the date they are made. Rite Aid expressly disclaims any current intention to update publicly any forward-looking statement after the distribution of this release, whether as a result of new information, future events, changes in assumptions or otherwise.

Reconciliation of Non-GAAP Financial Measures

The company separately reports financial results on the basis of Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share, and Adjusted EBITDA, which are non-GAAP financial measures. See the attached tables for a reconciliation of Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Adjusted EBITDA to net income (loss), and net income (loss) per diluted share, which are the most directly comparable GAAP financial measures. Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share exclude amortization of EnvisionRx intangible assets, merger and acquisition-related costs, loss on debt retirements, LIFO adjustments, and the Walgreens Boots Alliance, Inc. termination fee. Adjusted EBITDA is defined as net income (loss) excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, inventory write-downs related to store closings, debt retirements, the Walgreens Boots Alliance, Inc. termination fee, and other items (including stock-based compensation expense, merger and acquisition-related costs, severance and costs related to distribution center closures, gain or loss on sale of assets and revenue deferrals related to our customer loyalty program).

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Contact:

Investors: Matt Schroeder 717-214-8867 or investor@riteaid.com

Media: Susan Henderson 717-730-7766