Rite Aid raises fiscal guidance following positive Q3 sales increase of 5.3%

CAMP HILL, Pa. — Rite Aid on Thursday reported fiscal third-quarter revenues of $6.7 billion, an increase of 5.3%, driven primarily by same-store sales, the drug store retailer said. Same-store sales for the quarter ended Nov. 29 were up 5.4% overall, including a 1.6% lift in front-end comparable sales and a 7.2% increase in pharmacy same-store sales.

 

"We are pleased with our results for the third quarter," stated Rite Aid chairman and CEO John Standley. "Our focus on expanding our health-and-wellness offering and delivering a higher level of care to the communities we serve drove our strong same-store sales, prescription count and gross profit. Based upon our strong third-quarter results, we have raised our guidance for the year."

 

A big driver behind Rite Aid's results is its Wellness format, which now numbers 1,529 stores, representing 33.4% of the chain's store base. And it only get better as the chain continues to commit to its Wellness format; Rite Aid is expected to spend $525 million in capital expenditures by the end of the year. 

 

"We believe Wellness remodels are likely a modest help to the comp and could provide further support over time as a higher proportion of the store base is remodeled," noted Ed Kelly, Credit Suisse research analyst. "We continue to rate Rite Aid Outperform and expect much better performance from the company in fiscal 2016 as generics reaccelerate, ACA drives further gains, McKesson creates purchasing savings and internal initiatives like remodels drive better traffic," he noted following Rite Aid's November monthly sales report. 

 

In fact, based upon third-quarter results, the company is raising its guidance. Adjusted EBITDA is expected to be between $1.275 billion and $1.305 billion. Net income is expected to be between $315 million and $370 million and income per diluted share between $0.31 and $0.37. Sales are expected to be between $26.25 billion and $26.4 billion and same-store sales to range from an increase of 3.75% to an increase of 4.25% over Fiscal 2014.

 

Pharmacy sales included an approximate 228 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores increased 4.5% over the prior year period. Prescription sales accounted for 69.8% of total drug store sales, and third party prescription revenue was 97.6% of pharmacy sales.

   

Net income was $104.8 million or $0.10 per diluted share compared with last year's third-quarter net income of $71.5 million or $0.04 per diluted share. The improvement in net income resulted primarily from an increase in adjusted EBITDA and a lower LIFO charge, partially offset by a higher loss on debt retirement related to the redemption of the company's 10.25% senior secured notes.

 

Adjusted EBITDA was $332.8 million or 5% of revenues for the third quarter compared with $282.3 million or 4.4% of revenues for the like period last year. Adjusted EBITDA improved due to an increase in front-end and pharmacy gross profit, partially offset by an increase in selling, general and administrative expenses related to Rite Aid's higher level of sales. The improved pharmacy gross profit was driven by the increase in pharmacy prescription revenues and a reduction in generic drug costs, driven by the company's transition to its new drug purchasing and delivery arrangement with McKesson, partially offset by lower reimbursement rates.

 

In the third quarter, the company relocated three stores, remodeled 103 stores and expanded one store, bringing the total number of Wellness stores chainwide to 1,529. The company also acquired six stores and closed six stores, resulting in a total store count of 4,572 at the end of the third quarter.