Company begins reporting results for recently acquired PBM

CAMP HILL, Pa. — Rite Aid Corp. saw revenue surge in its fiscal 2016 second quarter, its first including results for recently acquired pharmacy benefit manager EnvisionRx.

Rite Aid said Thursday that sales for the second quarter ended Aug. 29 totaled $7.66 billion, up 17.5% from $6.52 billion a year earlier. For the first time, the company also reported revenue in two segments: retail pharmacy and pharmacy services, with the latter being the EnvisionRx business.

Retail pharmacy sales were $6.65 billion in the quarter, up 1.9% year over year mainly due to increased same-store sales, Rite Aid said. Pharmacy services sales came in at $1.07 billion from the date of the closing of the EnvisionRx acquisition, covering the period of June 24 through the end of the quarter, the company reported.

Same-store sales for retail pharmacy rose 2.1% for the second quarter, reflecting gains of 0.3% in the front end sales and 2.8% in the pharmacy. Rite Aid said comparable pharmacy sales included a negative impact of 223 basis points from introductions of new generic drugs.

Prescription count for comparable stores edged up 0.2% versus the year-ago quarter. Prescription sales represented 69.3% of overall drug store sales.

John Standley

“The second quarter was pivotal for Rite Aid as we completed the acquisition of EnvisionRx and worked as a team to accelerate our transformation into a retail healthcare company,” Rite Aid chairman and chief executive officer John Standley said in a statement. “EnvisionRx made positive contributions to our performance, as our pharmacy services segment delivered results that were in line with our expectations.

“We will continue to focus on key initiatives like wellness+ with Plenti, flu immunizations and Wellness store remodels to drive performance in our retail segment as we also leverage EnvisionRx’s suite of services to create unique and integrated offerings in the healthcare marketplace.”

For the second quarter, net earnings were $21.5 million, or 2 cents per diluted share, compared with $127.8 million, or 13 cents per diluted share, a year earlier. Rite Aid said the decrease reflects a $33.2 million loss on debt retirement from the redemption of the company’s 8.00% senior secured notes, higher depreciation and amortization expense from EnvisionRx and an increase in capital spending, as well as higher interest and transaction costs the EnvisionRx acquisition.

In addition, net income includes the cycling of a prior-year benefit of about $40 million from the transition to a new drug purchasing and delivery arrangement with McKesson Corp.

Analysts, on average, had forecast adjusted earnings for the quarter at 4 cents per share, with estimates ranging from a low of 2 cents to a high of 6 cents, according to Thomson Financial.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) totaled $346.8 million, or 4.5% of revenue, for the second quarter, compared with $364.2 million, or 5.6% of revenue, a year ago. Including the effect of the $40 million from the transition to the new drug purchasing and delivery arrangement, adjusted EBITDA increased by $22.6 million, Rite Aid said. That gain stemmed from $33.2 million of pharmacy services adjusted EBITDA, partially offset by a decline in retail pharmacy gross margin, due to lower pharmacy reimbursement, which was partially offset by lower drug purchasing costs, the company reported.

Rite Aid said it relocated three drug stores and remodeled 119 stores in the second quarter, bringing its total number of Wellness Store locations to 1,859. The company also opened two new drug stores, acquired two stores and closed nine stores, giving it 4,561 stores overall as of Aug. 29. Rite Aid added that it also opened five RediClinics clinics in the quarter, bringing the total number of clinics to 70.

Also on Thursday, Rite Aid updated its fiscal 2016 guidance, which the company said reflects more recent sales trends and additional amortization expense expected from EnvisionRx.

Net income is projected at $125 million to $195 million, or 12 cents to 19 cents per diluted share, compared with the company’s previous forecast of $150 million and $230 million, or 14 cents to 22 cents per diluted share. On average, analysts estimate Rite Aid’s fiscal 2016 adjusted earnings per share at 21 cents, with projections running from a low of 16 cents to a high of 27 cents, according to Thomson Financial.

Rite Aid expects revenue to come in at $30.8 billion to $31.1 billion for the fiscal year, with retail drug store sales of $26.7 billion to $27 billion. Same-store sales are forecast to rise 1.5% to 2.5%.

The company said the midpoint of adjusted EBITDA guidance remains unchanged. Adjusted EBITDA is expected to be $1.36 billion to $1.44 billion. Capital expenditures are forecast at $665 million.