Rite Aid Profit Rises, Cuts FY15 Outlook On Lower-Than-Expected Pharmacy Margin

(RTTNews) - Retail drugstore chain operator Rite Aid Corp. (RAD) Thursday reported increased profit and revenue for the second quarter, but lowered its full year earnings outlook and cut the upper end of its annual sales forecast, citing lower than anticipated pharmacy margin in the second half of Fiscal 2015. The stock dropped over 6 percent in pre-market activity.

Rite Aid Chairman and CEO John Standley said,"Heading forward, while we believe that our key initiatives will continue to drive top-line growth, we are revising our guidance based on lower than anticipated pharmacy margin in the second half of Fiscal 2015.''

Net income surged to $127.85 million from $32.83 million last year. Earnings per share were $0.13, compared to $0.03 in the previous year. Rite Aid said its earnings benefited from a lower LIFO charge due to pharmacy inventory reductions and a $62.2 million loss on debt retirement in the prior year.

On average, nine analysts polled by Thomson Reuters expected the company to report earnings per share of $0.06 for the quarter. Analysts' estimates typically exclude special items.

Revenues increased to $6.523 billion from $6.278 billion in the prior year. Analysts expected revenues of $6.48 billion.

Revenues grew 3.9 percent primarily due to an increase in pharmacy same store sales. Same store sales increased 4.1 percent, consisting of a 1.1 percent increase in front-end sales and a 5.6 percent increase in pharmacy sales.

Pharmacy sales included around 199 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores increased 3.7 percent and Prescription sales accounted for 68.8 percent of total drugstore sales.

During the quarter, the company relocated 5 stores, remodeled 117 stores and expanded 1 store, thus bringing the total number of wellness stores chainwide to 1,433. The company also opened 1 store and closed 10 stores, resulting in a total store count of 4,572 at the end of the quarter.

Looking ahead, Rite Aid said that based upon current estimates for reimbursement rates and expected lower profitability from new generics and generic drugs that recently lost exclusivity, the company is expecting decreases in pharmacy margin in the second half of Fiscal 2015 as compared to its prior estimates.

The company lowered its guidance for net income and net income per share. Net income is expected to be between $223 million and $333 million and income per share between $0.22 and $0.33.

The company also narrowed its guidance for sales and same store sales. Sales are expected to be between $26.0 billion and $26.3 billion and same store sales are estimated to range from an increase of 3.00 percent to an increase of 4.00 percent over fiscal 2014.

Analysts expect the company to report full year earnings per share of $0.34 on revenue of $26.29 billion.

Rite Aid previously expected net income between $298 million and $408 million or $0.30 to $0.40 per share, and sales between $26.0 billion and $26.5 billion. Same-store sales were expected to range from an increase of 2.50 percent to an increase of 4.50 percent.

"...As we navigate these headwinds, we will remain focused on growing our business, generating continued operational efficiencies and positioning our associates to deliver a consistently outstanding experience for our customers," Standley added.

RAD, which closed up 3.6 percent on Wednesday at $6.64, dropped 6.5 percent in pre-market activity.