Rite Aid Stumbles as It Looks Forward to Merger With Walgreens

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Rite Aid Corp. (NYSE: RAD) reported first-quarter fiscal 2017 results before markets opened Thursday. The drug store chain reported adjusted diluted earnings per share (EPS) of $0.01 on revenues of $8.2 billion. In the same period a year ago, Rite Aid reported EPS of $0.02 on revenue of $6.65 billion. First-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.05 and $8.26 billion in revenue.

On a GAAP basis, Rite Aid broke even on earnings for the quarter on a net loss of $4.6 million. Adjusted EBITDA dropped by $13.3 million year over year, which the company attributed to a $54.4 million decline in the retail pharmacy business “driven by lower pharmacy margin due to lower reimbursement rates that were not offset by purchasing efficiencies and script count growth.” Adjusted EBITDA of $41.2 million in the pharmacy services business partially offset the decline.

The company said last December that it would not update issue guidance for fiscal year 2017 while the merger with Walgreens Boots Alliance Inc. (NASDAQ: WBA) is being reviewed. Rite Aid continues to say that it expects the transaction to close in the second half of calendar year 2016.

Analysts are looking for fiscal second-quarter EPS of $0.06 and revenues of $8.28 billion. For the full year, the consensus estimates call for EPS of $0.24 and revenues of $33 billion.

Same-store sales for the first quarter rose 0.4% year over year on an increase of 0.1% in pharmacy sales and 1.2% in front-end sales. The introduction of new generic drugs cost the company 198 basis points in pharmacy sales. Prescriptions filled rose by 0.6% year over year, and prescription sales accounted for 68.9% of total sales and third-party prescription revenue accounted for 98% of pharmacy sales.

Shares traded down about 1.5% in premarket trading Thursday, at $7.67 in a 52-week range of $5.88 to $9.47. Thomson Reuters had a consensus analyst price target of $8.94 before the results were announced. Walgreens is paying $9.00 a share in its acquisition of Rite Aid.

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