Rite Aid CEO: Ongoing Walgreens merger affected Q4 earnings

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Rite Aid CEO: Ongoing Walgreens merger affected Q4 earnings

By Brian Berk - 04/25/2017

CAMP HILL, Pa. — Although Rite Aid affirmed it believes its acquisition by Walgreens Boots Alliance is in the “best interest of Rite Aid shareholders, customers and associates,” Chairman and CEO John Standley acknowledged “the extended duration of the merger process is having a negative impact on our results.

Walgreens and Rite Aid first announced the proposed merger on Oct. 27, 2015, but agreed to extend the deadline to July 31, while the companies awaited the Federal Trade Commission to rule on the transaction. In Tuesday’s 2017 fiscal fourth-quarter earnings release, Rite Aid stated: “While WBA and Rite Aid continue to be actively engaged in discussions with the Federal Trade Commission regarding the transaction and are working toward a close of the merger by July 31, 2017, there can be no assurance that the requisite regulatory approvals will be obtained, or that the merger will be completed within the time period contemplated by the merger agreement on the current terms, if at all.”

For its 2017 fiscal fourth quarter ended March 4, Rite Aid reported revenues of $8.5 billion and a net loss of $21.1 million. Its adjusted net loss came in at $3.2 million, and Adjusted EBITDA was $264.3 million, or 3.1% of revenues.

These earnings results bested Wall Street analyst projections, lifting Rite Aid’s stock in early Tuesday trading.

Retail Pharmacy Segment revenues were $7.1 billion and increased 4.3% compared to the prior year period primarily as a result of the extra week in the fourth quarter, partially offset by a decrease in same-store sales. Revenues in the company's Pharmacy Services Segment were $1.5 billion and decreased 1.3% compared to the prior year period. 

Same-store sales for the quarter decreased 3.0% vs. the prior year, consisting of a 4.3% decrease in pharmacy sales and a 0.3% decrease in front-end sales. Pharmacy sales included an approximate 246 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores, adjusted to 30-day equivalents, decreased 0.3% over the prior year period. Prescription sales accounted for 67.1% of total drugstore sales, and third-party prescription revenue was 98.4% of pharmacy sales.  

In addition to the ongoing proposed merger having an effect on earnings, Standley said: “We continue to face reimbursement rate challenges that we have been unable to offset with drug cost reductions.”

For the full year, the company reported revenues of $32.8 billion, net income of $4.1 million. Adjusted net income was $66.8 million.

Camp Hill-based Rite Aid operates 4,536 stores in 31 states and the District of Columbia.