Rite Aid's strong fiscal results portend significant growth in year ahead

4/8/2015


CAMP HILL, Pa. — Rite Aid on Wednesday reported $26.5 billion in revenues, representing a lift of 3.9%, and net income of $2.1 billion, or $2.08 per diluted share for the fiscal year ended Feb. 28. 


 


"In the fourth quarter, our strong growth in same-store sales and prescription count, as well as strong cost control, helped drive continued profitability," said Rite Aid chairman and CEO John Standley. "These positive results contributed to a successful year in which we took significant steps to further position Rite Aid as a retail healthcare company." 


 


One of those steps included the expansion of Rite Aid's distribution agreement with McKesson. "This five year extension provides Rite Aid with daily direct-to-store delivery and allowed McKesson to assume responsibility for the sourcing and distribution of generic pharmaceuticals," noted Brent Miller, Seeking Alpha contributor. "The more committed relationship between the two companies created greater supply chain efficiencies for Rite Aid by improving in-stock positions, as well as reducing purchasing costs."


 


Other significant fiscal 2015 highlights include the acquisition of pharamcy benefit manager EnvisionRx, which includes some 21 million patients for Rite Aid to manage, the introduction of its RediClinic operations into the Philadelphia and Washington, D.C./Baltimore markets and its commitment to its Wellness format. 


 


"The company continued their efforts to transition more stores to the new Wellness format," Miller wrote. "The Wellness format concentrates on adding Wellness Ambassadors, improved pharmacist accessibility and interactive kiosks. By the end of the third quarter, 1,259 stores out of total 4,570 were converted to this new format," he noted. "Shortly after the conclusion of fiscal year 2015, the company opened their first net-new store built from the ground since 2010. Between 2010 and 2015, the company was largely concentrating on remodeling stores and converting them to the Wellness format noted above. This 14,500-plus sq. ft. is a huge step forward for the company, as I believe it is symbolic of the management's positive outlook."


 


Same-store sales for the year increased 4.3% consisting of a 5.8% increase in pharmacy sales and a 1.2% increase in front-end sales. Pharmacy sales included a negative impact of approximately 175 basis points from new generic introductions. The number of prescriptions filled in same stores increased 3.5% over the prior year period. Prescription sales accounted for 68.8% of total drug store sales, and third-party prescription revenue was 97.5% of pharmacy sales.


 


For the fourth quarter, the company reported revenues of $6.8 billion, up 3.8%, and net income of $1.8 billion, or $1.79 per diluted share. Same-store sales for the quarter increased 4.5% over the prior year, consisting of a 5.7% increase in pharmacy sales and a 2% increase in front-end sales. Pharmacy sales included a negative impact of approximately 128 basis points from new generic introductions. The number of prescriptions filled in same stores increased 3.5% over the prior year period. Prescription sales accounted for 68.1% of total drug store sales, and third-party prescription revenue was 97.5% of pharmacy sales.


 


Looking forwared to fiscal 2016, Rite Aid said it expects sales to be between $26.9 billion and $27.4 billion with same-store sales expected to range from an increase of 2.5% to an increase of 4.5% over fiscal 2015.


 


The Pennsylvania pharmacy operator already has a strong head start, most recently reporting overall same-store sales increases of 4.3% for the month of March


 


Adjusted EBITDA is expected to be between $1.25 billion and $1.35 billion.


 


Net income for fiscal 2016 is expected to be between $190 million and $275 million or income per diluted share of $0.19 to $0.27. This guidance is net of estimated income tax expense of between $130 million and $180 million, or $0.13 to $0.18 per diluted share, respectively.


 


Capital expenditures are expected to be approximately $650 million. 


 


The company's outlook for fiscal 2016 is based on the anticipated benefits of its Wellness remodels, a full year of benefits from the pharmacy sourcing arrangement with McKesson and other initiatives to grow sales and drive operational efficiencies. The company's outlook also considers planned wage and benefit increases, the introduction of certain new generics and a reimbursement rate environment that is expected to continue to be challenging. 


 


The outlook does not consider the impact of the EnvisionRx acquisition due to the uncertainty as to when the transaction will close. The company's outlook also reflects an increase in income tax expense compared with fiscal 2015, which included an income tax benefit from the reduction of the deferred tax asset valuation allowance. The company expects cash tax payments to remain in a range of $10 million to $20 million for fiscal 2016 as it will continue to be able to utilize its tax net operating loss carry forward.


 


For the year, the company relocated 14 stores, acquired 9 stores, remodeled 440 stores, expanded 5 stores, opened two stores and closed 28 stores.


 


 

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