Rite Aid Corp. kept up its earnings momentum by reporting its third straight quarterly profit for its fiscal 2014 first quarter.


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Rite Aid turns in profitable first quarter

June 20th, 2013

CAMP HILL, Pa. – Rite Aid Corp. kept up its earnings momentum by reporting its third straight quarterly profit for its fiscal 2014 first quarter.

Rite Aid said Thursday that net income came in at $89.7 million, or 9 cents per diluted share, for the 13-week quarter ended June 1, compared with a net loss of $28.1 million, or 3 cents per diluted share, a year earlier.

The drug chain attributed the earnings improvement mainly to a gain in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and declines in interest and debt retirement expenses.

On average, analysts had forecast earnings of 9 cents per share for the fiscal 2014 first quarter, with estimates at a low of 8 cents and a high of 9 cents, according to Thomson Financial. Analysts had raised their consensus estimate of 4 cents per share earlier this month after Rite Aid announced that it was projecting a profit for the first quarter.

The first-quarter earnings mark another step toward improved profitability for Rite Aid. The drug chain posted net income for fiscal 2013 ended March 2 — its first full-year profit in six years — and had closed out the year with profits in the third and fourth quarters. The earnings reported for the third quarter ended Dec. 1 were the company's first quarterly profit in more than five years.

For the fiscal 2014 first quarter, Rite Aid's adjusted EBITDA was $344.8 million, or 5.5% of revenue, compared with $274.2 million, or 4.2% of revenue, in the prior-year period. According to the retailer, the increase stemmed primarily from improved pharmacy gross margin from generic drug introductions and continued strong cost control. Year-ago first-quarter results also included a $20.9 million charge for a settlement of a series of wage and hour class-action lawsuits, the company said.

"We kicked off our new fiscal year by posting strong first-quarter results that reflect our continued operational and financial progress. During the quarter, we generated net income for a third consecutive quarter and increased adjusted EBITDA by more than $70 million over last year's first quarter," John Standley, chairman, president and chief executive officer of Rite Aid, said in a statement.

"At the same time, our team's success in executing key initiatives like our wellness+ customer loyalty program, wellness store remodeling initiative and expanded pharmacy service offerings continue to drive our progress in transforming Rite Aid stores into true neighborhood destinations for health and wellness," Standley added. "We are pleased with our continued progress and remain focused on delivering the best products, service and care to meet our customers' unique wellness needs."

On the revenue side, total sales for the fiscal 2014 first quarter fell 2.7% year over year to $6.3 billion from $6.5 billion. Rite Aid attributed the decline mainly to the impact of generics on pharmacy same-store sales. Generic drugs carry lower prices, which impacts sales, but have larger profit margins.

Same-store sales for the first quarter fell 2.5%, reflecting a 0.4% uptick in the front end and a 3.8% decrease in the pharmacy. Rite Aid noted that pharmacy sales included an a negative impact of 458 basis points from new generics.

Comparable pharmacy prescription count dipped 0.1% in the quarter. Prescription sales represented 67.5% of total drug store sales.

As of June 1, Rite Aid operated 4,615 drug stores, compared with 4,652 a year earlier. The retailer said that during the first quarter it remodeled 108 stores, bringing the total number of wellness stores chainwide to 905, and closed eight stores.

Looking ahead, Rite Aid confirmed its fiscal 2014 guidance for sales, same-store sales and adjusted EBITDA, which was updated on June 7. Sales are forecast at $24.9 billion to $25.3 billion, with same-store sales ranging from a decrease of 0.75% to a gain of 0.75%. Adjusted EBITDA (which is reconciled to net income/loss on the attached table) guidance is pegged at $1.09 billion to $1.175 billion.

Rite Aid forecasts fiscal 2014 net income at between $22 million, or 1 cent per diluted share, and $162 million, or 16 cents per diluted share. The company said the earnings guidance reflects the expected charge from itss recently announced refinancing transactions, plus the resulting interest savings. Capital expenditures are expected to be $400 million.

For fiscal 2014, analysts project Rite Aid's earnings at 17 cents per share, on average, with estimates running from a low of 14 cents to a high of 20 cents, according to Thomson Financial.

In February, Rite Aid announced that it has completed the refinancing of its revolving credit facility and certain first- and second-lien instruments. Earlier this month, the company began the refinancing of its 7.5% second lien notes due in 2017, slated to close June 21, and its 9.5% senior notes due in 2017, expected to close July 2. Rite Aid said the refinancings will extend debt maturities to 2018 and beyond and stand to produce annual cash interest savings of $85 million.

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