Rite Aid Q1 Profit Down, Yet Meets View; Backs FY15 Forecast

(RTTNews) - Rite Aid Corp. (RAD) reported Thursday a sharp decline in first-quarter profit amid higher-than-expected drug costs and reimbursement rate pressure, despite higher comparable store sales. Earnings per share met analysts' estimates, while top line beat their view. Further, the retail drugstore chain operator confirmed its forecast for fiscal 2015.

For the first quarter, net income attributable to shareholders was $41.45 million or $0.04 per share, compared to $91 million or $0.09 per share last year.

On average, nine analysts polled by Thomson Reuters expected the company to report profit per share of $0.04 for the quarter. Analysts' estimates typically exclude special items.

The company attributed the decline in net income primarily to a decrease in adjusted EBITDA, a key earnings metric, and higher income tax expense, partially offset by lower interest expense and a lower LIFO charge.

Adjusted earnings before interest, tax, depreciation and amortization or EBITDA was $282.6 million, lower than last year's $344.8 million. Adjusted EBITDA margin dropped to 4.4 percent from last year's 5.5 percent. The poor results reflected lower pharmacy gross profit due to decline in reimbursement rates that were not offset with reductions in generic costs, as well as higher salary and payroll related expenses, the company noted.

Revenues were $6.47 billion for the quarter, 2.7 percent higher than $6.29 billion a year ago, primarily on an increase in pharmacy same store sales. Analysts expected revenue of $6.43 billion for the quarter.

In the quarter, same store sales increased 3.1 percent over the prior year. Front-end same store sales were flat, while pharmacy same store sales increased 4.6 percent. The company noted that pharmacy sales included an approximate 143 basis point negative impact from new generic introductions.

The number of prescriptions filled in same stores increased 2.3 percent.

Rite Aid Chairman and CEO John Standley said, "In the first quarter, we delivered a strong store operating performance, highlighted by increases in same-store sales and same-store prescription count."

In the quarter, the company relocated 3 stores, remodeled 105 stores and expanded 1 store.The total store count was 4,581 at the end of the first quarter.

Looking ahead for fiscal 2015, Rite Aid continues to expect net income between $298.0 million and $408.0 million or $0.30 to $0.40 per share, and sales between $26.0 billion and $26.5 billion. Analysts expect the company to report fiscal 2015 profit per share of $0.35 on revenue of $26.19 billion.

The company also continues to project same store sales to range from an increase of 2.50 percent to an increase of 4.50 percent, and adjusted EBITDA between $1.275 billion and $1.350 billion. In pre-market activity, Rite Aid stock is losing $0.14 or 1.88 percent, and trading at $7.30.