Rite Aid Corp. beat analysts' earnings expectations for its fiscal 2014 second quarter, hoisting its stock price in morning trading.


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Rite Aid 2Q earnings top Wall Street forecast

September 19th, 2013

CAMP HILL, Pa. – Rite Aid Corp. beat analysts' earnings expectations for its fiscal 2014 second quarter, hoisting its stock price in morning trading.

Rite Aid opened its 1,000th "wellness store" location during the second quarter.

The drug chain said Thursday that net income for the 13-week second quarter ended Aug. 31 came in at $32.8 million, or 3 cents per diluted share, compared with a net loss of $38.8 million, or 5 cents per diluted share, a year earlier.

The net earnings improvement stemmed mainly from an increase in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and a decrease in interest expense, partially offset by the loss on debt retirement, Rite Aid reported.

Analysts, on average, had projected a loss of 4 cents per share for Rite Aid's second quarter, with estimates ranging from a low of a 7-cents-per-share loss to a high of breakeven, according to Thomson Financial.

Last year's second quarter included a $62.2 million (7 cents per diluted share) charge from a loss on debt retirement on refinancings completed during the quarter, partially offset by a recovery of $23.5 million (2 cents per diluted share) related to the settlement of a prescription drug antitrust case.

Adjusted EBITDA climbed to $341.6 million, or 5.4% of revenue, for the second quarter compared with $218.7 million, or 3.5% of revenue, for the prior-year period. Rite Aid attributed the gain primarily to the introduction of new generic drugs, which carry higher margins, and improved front-end gross margin, strong expense control and the settlement of the prescription drug antitrust case.

"We posted excellent results in the second quarter, highlighted by another quarter of net income and an all-time company record for second-quarter adjusted EBITDA," Rite Aid chairman and chief executive officer John Standley said in a statement. "As we continue to improve our operational and financial performance, we are also making tremendous progress in transforming our more than 4,600 stores into true neighborhood destinations for health and wellness, as indicated by our successful launch of the wellness65+ loyalty program for seniors, a strong start to our flu immunization campaign and the completion of our 1,000th wellness store remodel."

On Thursday, Rite Aid's share price opened at $4.21 and had risen as high as $4.35 in morning trading after closing at $3.71 the day before.

Second-quarter sales edged up 0.8% to nearly $6.28 billion from $6.23 billion a year ago. Rite Aid said the gain was driven mainly by a 1% rise in same-store sales during the quarter, which was partially offset by store closings.

Comparable-store sales in the second quarter reflect a 0.3% decrease in the front end and a 1.7% increase in the pharmacy sales. Rite Aid noted that comparable pharmacy sales included an 249-basis-point negative impact from new generics, which have lower prices but higher profit margins.

Prescription count in the second quarter was flat year over year. Rite Aid said prescription sales represented 67.9% of total drug store sales in the quarter. 

For the 26-week fiscal 2014 first half, Rite Aid's revenue came in at $12.57 billion, down 1% from nearly $12.70 in the year-ago period. Net income in the half was $122.49 million, compared with a loss of $66.85 million a year earlier.

Rite Aid relocated five stores and remodeled 109 stores during the second quarter, raising the total number of its "wellness store" locations to 1,019. The retailer said it closed 12 stores and acquired one store in the quarter, resulting in a total store count of 4,604 as of Aug. 31.

The strong-than-expected performance in the fiscal 2014 first half led Rite Aid to raise its guidance for net income and adjusted EBITDA for the full year. The company said it also expects a stronger second half than its previous forecast, though still lower than the year-ago period.

Net income is now projected at $182 million (18 cents per diluted share) to $268 million (27 cents per diluted share) for the year, compared with the earlier guidance of between $22 million (1 cent per diluted share) and $162 million (16 cents per diluted share).

The consensus analyst forecast is for full-year earnings of 14 cents per share, with estimates running from a low of 11 cents to a high of 17 cents, according to Thomson Financial.

Rite Aid projects fiscal 2013 adjusted EBITDA at $1.24 billion to $1.30 billion and sales at $25.1 billion to $25.3 billion. The company estimates same-store sales for the year to range from a decrease of 0.5% to a gain of 0.5%. Capital spending is expected to be $400 million.

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