Rite Aid Q2 Profit Misses View, But Revenues Top; Trims 2016 EPS Outlook

(RTTNews) - Retail drugstore chain operator Rite Aid Corp. (RAD) reported Thursday a profit for the second quarter that plunged from last year, despite revenue growth, reflecting lower gross margins, costs related to the EnvisionRx acquisition and loss on debt retirements.

Earnings per share missed analysts' expectations, while quarterly revenues topped their estimates due to the contribution from EnvisionRx acquisition. The company also trimmed earnings forecast for the full-year 2016.

"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. EnvisionRx made positive contributions to our performance as our Pharmacy Services Segment delivered results that were in line with our expectations," Chairman and CEO John Standley said.

The Camp Hill, Pennsylvania-based company reported net income attributable to common stockholders of $21.47 million or $0.02 per share for the second quarter, sharply lower than $129.21 million or $0.13 per share in the prior-year quarter.

On average, 11 analysts polled by Thomson Reuters expected the company to report earnings of $0.04 per share in the quarter. Analysts' estimates typically exclude special items.

Revenues for the quarter grew 17.5 percent to $7.66 billion from $6.52 billion in the same quarter last year, and topped eleven Wall Street analysts' consensus estimate of $7.57 billion.

Retail pharmacy revenues grew 1.9 percent to $6.65 billion from $6.52 billion last year, primarily as a result of a 2.1 percent increase in same store sales.

Same store sales growth consists of a 0.3 percent increase in the front-end sales and a 2.8 percent rise in the pharmacy sales.

Pharmacy services segment revenue was $1.07 billion from the date of the acquisition of EnvisionRx, which was June 24, 2015 through the end of the quarter.

Pharmacy same store sales included about 223 basis points negative impact from new generic introductions. The number of prescriptions filled in same stores increased 0.2 percent. Prescription sales contributed to 69.3 percent of total sales, and third party prescription sales represented 97.8 percent of pharmacy sales.

Gross profit for the second quarter was $1.86 billion, down from $1.89 billion in the year-ago quarter, and gross margin percentage contracted 106 basis points to 27.99 percent from last year.

During the second quarter, Rite Aid opened relocated three stores, remodeled 119 stores, opened two stores, acquired two stores, and closed nine stores. At the end of the quarter, the company operates 4,561 stores in 31 states and the District of Columbia.

Looking ahead to fiscal 2016, the company now expects earnings in a range of $0.12 and $0.19 per share, down from the prior forecast range of $0.14 to $0.22 per share. However, the company now projects annual total revenues between $30.8 billion and $31.1 billion, drug store sales between $26.7 billion and $27 billion, and same store sales growth of 1.5 to 2.5 percent.

Previously, the company anticipated total revenues between $30.7 billion and $31.2 billion, drug store sales between $26.9 billion and $27.4 billion, and same store sales growth of 2.5 to 4.5 percent.

Analysts are currently looking for full-year 2016 earnings of $0.21 per share on revenues of 30.86 billion.

The company said the guidance reflects the more recent sales trends and additional expected amortization expense from EnvisionRx.

"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," Standley added.

RAD closed Wednesday's regular trading session at $8.59, up $0.02 on a volume of 21.79 million shares. In the past 52-week period, the stock has been trading in a range of $4.42 to $9.47.