Rite Aid’s Q3 shows growth in Elixir, headwinds in pharmacy margin

Facing several headwinds, including pharmacy margin and seasonal markdowns, Rite Aid lowered its full year guidance.

“Our third quarter beat consensus on top and bottom line, and we’re pleased with our results at Elixir and our accelerated sales growth at retail. However, based on recent trends, we are lowering our full year guidance due to headwinds including pharmacy margin, seasonal markdowns and higher shrink,” said Heyward Donigan, president and CEO. “In addition, we are kicking off a performance acceleration program, which allows us to fast-track initiatives that will improve sales, script volume and operating margins, and free up cash. We look forward to updating you on our progress at year end.”

For the third quarter, Rite Aid reported a net loss of $67.1 million, or $1.23 loss per share, adjusted net loss of $7.9 million, or 14 cents loss per share, and adjusted EBITDA of $121.9 million, or 2% of revenues.

Revenues for the quarter were $6.08 billion compared to revenues of $6.23 billion in the prior year’s quarter, largely due to a reduction in revenue from COVID vaccines and testing, store closures and a planned loss of covered lives at Elixir. These items were partial

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Third quarter net loss was $67.1 million, or $1.23 per share, compared to last year’s third quarter net loss of $36.1 million, or 67 cents per share. The increase in net loss is due primarily to a decrease in adjusted EBITDA, an increase in interest expense and an increase in restructuring charges. These items were partially offset by a reduction in facility exit and impairment charges, the retailer said.

Rite Aid’s retail pharmacy segment business saw revenues decrease .5% over the prior year quarter, driven by a reduction in COVID vaccine and testing revenue as well as store closures. The decrease was partially offset by an increase in both acute and maintenance prescriptions, Rite Aid said.

Rite Aid's same store sales for the quarter increased 7.5% over the prior year period, consisting of a 9.5% increase in pharmacy sales and a 2.2% increase in front-end sales. Front-end same store sales, excluding tobacco products, increased 2.7%. The number of prescriptions filled in same stores, adjusted to 30-day equivalents, increased 4.4% over the prior year period. Total same store prescriptions, excluding COVID immunizations, increased 3.6%, with same store maintenance prescriptions increasing 2.1% and other same store acute prescriptions increasing 8%. Prescription sales accounted for 72% of total drugstore sales. Total store count at the end of the third quarter was 2,324, Rite Aid said.

Rite Aid's retail pharmacy segment's adjusted EBITDA was $81.7 million, or 1.9% of revenues, for the quarter compared to last year's third quarter adjusted EBITDA of $125.9 million, or 2.8% of revenues. The decline in adjusted EBITDA was due to decreased gross profit. The decline was partially offset by a decrease in selling, general and administrative expenses of $81.2 million. Gross profit was negatively impacted by the decline in COVID vaccinations and testing and increased shrink expense. This decline was 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, Rite Aid said.

[Read more: Rite Aid’s Q2 shows momentum in stores, headwinds in PBM business]

Rite Aid's pharmacy services segment business saw revenues of $1.7 billion for the quarter, a decrease of 7.1% 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.

Pharmacy services segment adjusted EBITDA was $40.2 million, or 2.3% of revenues, for the third quarter compared to last year’s third quarter adjusted EBITDA of $28.9 million, or 1.6% of revenues. The current quarter benefitted from increased gross profit resulting from procurement economics, and reductions in SG&A expenses. The increase was partially offset by the decline in revenues associated with lost clients, as mentioned above, the company said.

Rite Aid said it is narrowing its outlook for fiscal 2023 revenues and lowering its outlook for net loss and adjusted EBITDA.

Total revenues are expected to be between $23.7 billion and $24 billion in fiscal 2023. Retail pharmacy segment revenue is expected to be between $17.4 billion and $17.6 billion and pharmacy services segment revenue is expected to be between $6.3 billion and $6.4 billion (net of any intercompany revenues to the retail pharmacy segment).

The company's net loss is expected to be between $584 million and $551 million, Rite Aid said.

Adjusted EBITDA is expected to be between $410 million and $440 million versus prior guidance of between $450 million and $490 million, due to expectations of lower pharmacy margins, cautious consumer demand and the related impact on seasonal markdowns and continued shrink expense. Retail pharmacy segment adjusted EBITDA is expected to be between $265 million and $285 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 $2.18 and $1.78.

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.

Rite Aid said it expects to generate positive free cash flow in fiscal 2023.