With a reduction in COVID-19 vaccine and testing revenue as well as store closures, Rite Aid swung to a loss in its fiscal second quarter.
Rite Aid reported a net loss of $331.3 million, or $6.07 loss per share, adjusted net loss of $34.4 million, or 63 cents loss per share and adjusted EBITDA of $78.5 million, or 1.3% of revenues for its second fiscal quarter ended Aug. 27, 2022.
Revenues for the second quarter were $5.9 billion compared to revenues of $6.11 billion in the prior year’s quarter. The company attributed the loss to a reduction in revenue from COVID-19 vaccines and testing, store closures and a planned loss of covered lives at Elixir.
Second quarter net loss was $331.3 million, or $6.07 per share, compared to last year’s second quarter net loss of $100.3 million, or $1.86 per share. The increase in net loss is due primarily to a current quarter charge of $252.2 million, or $4.62 per share, for the impairment of goodwill related to the pharmacy services segment, the company said. Net loss also was impacted by higher facility exit and impairment charges driven by the company’s previously announced store closures. These items are partially offset by a gain on our repurchase of certain bonds at a discount, a gain on sale of assets resulting from sale leasebacks of two distribution centers and script file sales resulting from the store closures, Rite Aid said.
“We’ve made good progress on key initiatives during the quarter: driving prescription growth and market share, improving operating margins at Elixir and achieving reductions in SG&A expenses across our business,” said Heyward Donigan, president and CEO. “As we look to the second half of the year, we expect continued pressure on consumer spending and supply chain challenges. At the same time, we are ready to meet a high demand for immunizations, while driving continued strong performance at Elixir and further SG&A expense reductions.”
[Read more: Rite Aid kicks off family immunization days]
Rite Aid's retail pharmacy segment revenues decreased 1.1% over the prior year quarter, driven by a reduction in COVID-19 vaccine and testing revenue as well as store closures. This decrease was partially offset by an increase in both acute and maintenance prescriptions. Same store sales for the second quarter increased 5.6% over the prior year period, consisting of an 8% increase in pharmacy sales, partially offset by a 0.3% decrease in front-end sales. Front-end same store sales, excluding cigarettes and tobacco products, increased 0.2%. The number of prescriptions filled in same stores, adjusted to 30-day equivalents, increased 3.1% over the prior year period. Total same store prescriptions, excluding COVID-19 immunizations, increased 2.1%, with same-store maintenance prescriptions increasing 1.2% and other same-store acute prescriptions increasing 5.3%. Prescription sales accounted for 70.7% of total drug store sales. Total store count at the end of the second quarter was 2,352.
Rite Aid's retail pharmacy segment adjusted EBITDA was $31.5 million, or 0.7% of revenues, for the second quarter compared to last year’s second quarter adjusted EBITDA of $69.4 million, or 1.6% of revenues. The decline in adjusted EBITDA was due to decreased gross profit, partially offset by a decrease in selling, general and administrative expenses of $45 million. Gross profit was negatively impacted by the decline in COVID-19 vaccinations and testing, partially offset by the increase in prescriptions filled. SG&A expenses benefited from lower payroll, occupancy and other operating costs due to store closures and cost control initiatives, the company said.
[Read more: Rite Aid opens online scheduling for flu shots]
Rite Aid's pharmacy services segment revenues were $1.7 billion for the quarter, a decrease of 9% compared to the prior year quarter. The decrease in revenues was primarily the result of a planned decrease in Elixir Insurance membership and a previously announced client loss due to industry consolidation. The decrease was partially offset by increased utilization of higher cost drugs, Rite Aid said.
The pharmacy services segment adjusted EBITDA was $47.1 million, or 2.7% of revenues, for the second quarter compared to last year’s second quarter adjusted EBITDA of $36.8 million, or 1.9% of revenues. The current quarter benefitted from increased gross profit resulting from improved network performance, increases in rebates and reductions in SG&A expense, partially offset by the decline in revenues associated with lost clients, the company said.
Rite Aid said that it is maintaining its outlook for fiscal 2023 revenues and lowering its outlook for net loss and adjusted EBITDA.
Total revenues are expected to be between $23.6 billion and $24 billion in fiscal 2023. Retail pharmacy segment revenue is expected to be between $17.35 billion and $17.65 billion and pharmacy services segment revenue is expected to be between $6.25 billion and $6.35 billion (net of any intercompany revenues to the retail pharmacy segment).
Net loss is expected to be between $520.3 million and $477.3 million. "Our estimates for net loss have increased primarily due to goodwill impairment charges in the pharmacy services segment and increased impairment charges for closed stores," Rite Aid said.
Adjusted EBITDA is expected to be between $450 million and $490 million versus prior guidance of between $460 million and $500 million, due to expectations of cautious consumer demand and continued supply chain challenges in Rite Aid's front end retail business, partially offset by improved margins at Elixir. Retail pharmacy segment adjusted EBITDA is expected to be between $305 million and $335 million and pharmacy services segment adjusted EBITDA is expected to be between $145 million and $155 million.
Adjusted net loss per share is expected to be between $1.52 and $0.97.
Capital expenditures are expected to be approximately $225 million, with a focus on investments in digital capabilities, technology, prescription file purchases and distribution center automation.
“We expect to generate positive free cash flow in fiscal 2023,” the retail pharmacy said.