Drugstore chain operator
Rite Aid Corp.
) posted first-quarter 2012 adjusted earnings per share of 1 cent,
which bettered both the prior-year loss of 7 cents a share as well
as the Zacks Consensus Estimate of a loss of 4 cents a share. The
company's results mainly benefited from same store sales growth,
improved gross margin, higher adjusted EBITDA, lower depreciation
and amortization expenses and lower lease termination and
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On a GAAP basis, Rite Aid reported first-quarter net loss of $28.1
million or 3 cents per share, including a $17.8 million loss on
debt modification related to the completion of a previously
announced refinancing and a $20.9 million charge related to a
proposed settlement of a series of wage and hour class action
Rite Aid's revenues came in at $6,468.3 million, up 1.2% compared
with $6,390.8 million in the prior-year period. The improved
revenue resulted from growth in same-store sales, partially offset
by store closings. Same-store sales for the quarter increased 2.5%
due to the positive impact of wellness+ and positive prescription
count. Moreover, total revenue edged past the Zacks Consensus
Estimate of $6,467 million.
Pharmacy same-store sales grew 2.4%, despite the negative impact of
326 basis points (bps) from the introduction of new generic drugs.
Prescriptions filled at comparable stores increased 3.0% from the
year-ago quarter. Besides, front-end same-stores sales climbed 2.7%
during the quarter.
During the quarter, the company continued to see substantial
progress in wellness+ customer loyalty program as well as its
Wellness store format. During the period, the company witnessed
solid growth in same-store prescription counts.
Other than prescription drugs, Rite Aid sells a wide assortment of
merchandises, termed as "front end" products, including
over-the-counter medications, health and beauty aids, personal care
items and cosmetics.
Rite Aid's gross profit increased 3.4% year over year to $1,748.8
million, with gross margin expanding 50 bps to 27.0%. Gross margin
for the quarter expanded mainly on account of higher sales as well
as increased pharmacy gross margins due to higher generic
prescriptions. SG&A expenses as a percentage of sales expanded
by 130 bps to 26.1%.
Rite Aid recorded an approximately 29.3% decline in lease
termination and impairment charges to $12.1 million, primarily
driven by lower store closures in the reported quarter. Rite Aid
reported adjusted EBITDA of $274.2 million compared with an
adjusted EBITDA of $262.9 million in the prior-year quarter,
primarily due to favorable sales and script trends and increased
gross profits, offset by an increase in litigation expense related
to the future class action settlement.
Balance Sheet and Cash Flow
At quarter-end, Rite Aid had cash and cash equivalents of $214.8
million and long-term debt of $6,025.7 million. The company ended
the first quarter with $1.151 billion of liquidity, including $102
million of invested cash. There was no borrowing outstanding under
its revolver credit facility while the company had $125 million of
outstanding letters of credit. The company generated a cash flow of
$363.6 million from its operating activities.
In fiscal 2013, the company expects to incur capital expenditure of
$300 million, mostly on store remodels and prescription file buys.
Rite Aid lowered its fiscal 2013 revenue forecast to be between
$25.3 billion and $25.7 billion based on same-store sales ranging
from a decline of 0.5% to an increase of 1.0% year over year. The
lowered sales and comps guidance is mainly due to projected
negative impact of 520 to 600 basis points in the new generic
introductions on pharmacy same store sales.
However, Rite Aid upped the lower end of its 2013 EBITDA forecast,
bringing the guidance to $950 - $1.025 billion. Currently, net loss
is expected to be in the range of $103 - $248 million (or 13 cents
to 29 cents per share).
The company competes with retail drugstore chains, independently
owned drugstores, supermarkets, mass merchandisers, discount
stores, dollar stores, and mail order pharmacies. Competitive
pressure in the industry is unlikely to subside with continued
consolidation, new store openings, and increased mandatory mail
orders. The company's direct competitors are
CVS Caremark Corporation
Currently, Rite Aid maintains a Zacks #3 Rank, which translates
into a short-term Hold rating. However, we retain a long-term
Neutral recommendation on the stock.