Rite Aid Corp.
) posted third-quarter fiscal 2014 earnings of 4 cents per share,
which was in line with the Zacks Consensus Estimate. However,
results were below the comparable year-ago quarter figure of 7
cents per share primarily due to an increase of 7.6% in diluted
weighted average shares.
However, in dollar terms, net income increased 15.5% year over
year to $61.9 million primarily driven by higher sales, effective
cost management and lower interest expenses.
Rite Aid's earnings per share for the quarter included a
negative impact of 3 cents related to redemption of convertible
preferred stock. Notably, the company's prior year quarter
results included a benefit of 2 cents per diluted share related
to the settlement of interchange fee litigation. Excluding
one-time items, Rite Aid's adjusted earnings for both the periods
came in at 7 cents per share.
Rite Aid's third-quarter revenues rose 1.9% year over year to
$6,357.7 million and surpassed the Zacks Consensus Estimate of
$6,328.0 million. The top-line growth was driven by improved
comparable-store sales. Comparable-store sales in the quarter
were up 2.3% due to rise in pharmacy sales, slightly offset by
weak front-end sales.
During the quarter, pharmacy sale increased 3.5% despite
having a negative impact of 88 basis points (bps) due to the
introduction of new generic drugs. Additionally, prescriptions
filled at comparable stores inched up 0.7% year over year.
Prescription sales constituted about 68.6% of total drugstore
sales, while third-party prescription revenues accounted for
97.1% of the pharmacy sales. However, Rite Aid's front-end sales
dropped 0.2% in the reported quarter.
Rite Aid's gross profit dipped 0.6% year over year to $1,800.7
million, with gross margin contracting 70 bps to 28.3% primarily
due to due to higher cost of goods sold. Selling, general and
administrative (SG&A) expenses increased 1.2% to $1,632.3
million while as a percentage of sales, it contracted 10 bps to
25.7% primarily due to effective cost management.
Rite Aid reported adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA) of $282.3 million, down
4.4% from $295.3 million in the prior-year quarter. As a
percentage of sales, it fell 30 bps to 4.4%. However, the
prior-year period figure included a benefit of $18.1 million
related to the settlement of interchange fee litigation.
Excluding that, this year's adjusted EBITDA increased 1.8%. This
drugstore chain company, which competes with
China Nepstar Chain Drugstore Ltd
), has witnessed 12 straight quarters of improved adjusted
Balance Sheet & Cash Flow
At quarter-end, Rite Aid had cash and cash equivalents of
$183.2 million and long-term debt (excluding current maturities)
of $5,825.8 million. The company ended the quarter with $1.1
billion of liquidity. Rite Aid had $590.0 million of outstanding
debt under its $1.795 billion senior secured credit facility and
$88.0 million of outstanding letters of credit.
During the first three quarters of fiscal 2014, the company
generated a cash flow of $247.4 million from operating activities
and incurred capital expenditure of nearly $336.5 million
(gross). For fiscal 2014, the company expects capital expenditure
of $415.0 million.
Rite Aid stores continue to undergo renovation with 94 outlets
being remodeled in the third quarter. Additionally, 4 stores were
relocated. At the quarter-end, the company, overall, completed
wellness remodels at about 1,117 stores. As of Nov 30, 2013, Rite
Aid operated 4,595 stores across 31 states and the District of
Revised Fiscal 2014 Guidance
Looking ahead, the company has lowered its fiscal 2014 outlook
based on a possible rise in pharmaceutical costs, lower benefit
from new generic drugs as most of these drugs are included within
the company's portfolio and persistent reimbursement rate
This spread negative sentiment among investors and led to a
10.2% fall in the company's share price.
Rite Aid now expects sales for fiscal 2014 to come in between
$25.3 billion and $25.425 billion, down from the previous range
of $1,240.0-$1,300.0 million. Comparable-store sales for the
fiscal is anticipated to come in the range of 0.35% to 0.85%.
Furthermore, Rite Aid lowered its fiscal 2014 earnings guidance
range to 17-23 cents per share compared with 18-27 cents
projected earlier. Currently, the Zacks Consensus Estimate stands
at 22 cents per share, which could witness a downward revision
following the company's reduced guidance.
Moreover, Rite Aid, which trails only
CVS Caremark Corp.
) in size, trimmed its adjusted EBITDA guidance range to
$1,250.0-$1,280.0 million from the prior forecast of
Currently, Rite Aid carries a Zacks Rank #3 (Hold).
CVS CAREMARK CP (CVS): Free Stock Analysis
CHINA NEPSTAR (NPD): Free Stock Analysis
RITE AID CORP (RAD): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
To read this article on Zacks.com click here.