Rite Aid Corporation Q3 Earnings Report: The Struggle Continues

Smallcap retail drugstore stock Rite Aid Corporation (NYSE: RAD) reported Q3 2018 earnings after the market closed Wednesday as the Company struggles with falling profitsin its pharmacy business as increases in branded drug prices have slowed while reimbursement pressure for generics has increased.

Revenues from continuing operations were $5.4 billion versus revenues from continuing operations of $5.7 billion as Retail Pharmacy Segment revenuesfell 3% to$4.0 billion primarily as a result of a decrease in same store sales and reimbursement rates. Revenues in the company’s Pharmacy Services Segment were $1.4 billion and fell 12.2%due to an election to participate in fewer Medicare Part D regions and a decline in commercial business. Same store sales from continuing operations decreased 2.5% from the prior year consisting of a 3.5% decrease in pharmacy sales and a 0.5% decrease in front-end sales. Pharmacy sales included an approximate 198 basis point negative impact from new generic introductions while the number of prescriptions filled in same stores (adjusted to 30-day equivalents) decreased 2.4% from the prior year period due in part to exclusion from certain pharmacy networks that Rite Aid participated in the prior year. Prescription sales from continuing operations accounted for 66.5% of total drugstore sales. Net loss from continuing operations was $18.2 million versus net income from continuing operations of $23.6 million.

The Chairman/CEOcommented:

“Our pro-forma Adjusted EBITDA from continuing operations for the third quarter of $153 million, which includes $24 million in fees that would have been received if all of the divested stores were being managed under the TSA Agreement as of the beginning of the period, was in line with our expectations.”

“The third quarter was a busy time for our team in preparing for and beginning the transfer of stores and related assets to Walgreens Boots Alliance. I would like to thank our entire Rite Aid team for their dedication and efforts in accomplishing this important business initiative for our company and our shareholders. To date, we have transferred 357 stores and have received approximately $715 million in proceeds, which we have used to pay down debt. Looking forward, in addition to completing the transfer process, we will continue to focus on our most significant business-building opportunities as we work together to deliver a great experience to our customers and patients.”

The earnings release noted:

As previously announced on November 27, 2017, the company completed the pilot closing and first subsequent closing under the amended and restated asset purchase agreement with Walgreens Boots Alliance, Inc. (Nasdaq: WBA), resulting in the transfer of 97 Rite Aid stores and related assets to WBA during the third quarter. Under the amended and restated agreement, WBA will purchase a total of 1,932 stores, three distribution centers and related inventory from Rite Aid for an all-cash purchase price of $4.375 billion. Rite Aid and WBA expect to continue to transfer ownership of the stores in phases over the coming months. Since the majority of the closing conditions have been satisfied, and the subsequent transfers of Rite Aid stores and related assets remain subject to minimal customary closing conditions applicable only to the stores being transferred in those phases, the company classified the assets and liabilities to be sold to WBA-1,932 stores and three distribution centers- as held for sale and the corresponding operating results and cash flows of those stores as discontinued operations in its financial statements in accordance with GAAP.

Rite Aid Corporationalong with Walgreens Boots Alliance Inc (NASDAQ: WBA) wereboth previously in our Elite Opportunity Pro (EOP) portfolio with RADconsidered aturnaroundplay that could eventually become a takeover target which did prove correct in October 2015 whenthe now terminateddefinitive agreement with Walgreens Boots Alliancewas announced. Walgreens was originally going toacquire all outstanding shares ofthe formerfor $9.00 per share in cash or approximately $17.2 billion – pending regulatory and shareholder approval.

A technical chart for Rite Aid Corporation shows shares falling until November when they reversed into an uptrend:

A long term performance chart shows Rite Aid Corporation once had outperformedlarge caps Walgreens Boots Alliance and CVS Caremark Corporation (NYSE: CVS)whose performance has leveled off:

Finally, here is a quick recap of mid cap Rite Aid Corporations recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page:

Earnings History11/29/20162/27/20175/30/20178/30/2017
EPS Est. 0.04 -0.01 -0.01 -0.01
EPS Actual 0.02 0 -0.05 -0.01
Difference -0.02 0.01 -0.04 0
Surprise % -50.00% 100.00% -400.00% 0.00%
EPS TrendCurrent Qtr. (Nov 2017)Next Qtr. (Feb 2018)Current Year (2018)Next Year (2019)
Current Estimate -0.02 -0.01 -0.09 0.05
7 Days Ago -0.02 -0.01 -0.09 0.05
30 Days Ago -0.02 -0.01 -0.08 0.06
60 Days Ago -0.02 -0.01 -0.08 0.06
90 Days Ago -0.01 -0.01 -0.08 0.06

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