Rite Aid Reports Fiscal 2018 Third Quarter Results

Rite Aid Corporation (NYSE: RAD) today reported operating results for its third fiscal quarter ended December 2, 2017.

For the third quarter, the company reported net income of $81.0 million, or $0.08 per diluted share and Adjusted EBITDA of $214.2 million. The company reported net loss from continuing operations of $18.2 million, or $0.02 per diluted share, Adjusted net income from continuing operations of $1.6 million, or $0.00 per share, and Adjusted EBITDA from continuing operations of $129.2 million, or 2.4 percent of revenues. Adjusted EBITDA from continuing operations in both quarters does not include $24 million of fees that would be earned if all of the stores to be sold to WBA were being supported under the TSA Agreement.

“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,” said Rite Aid Chairman and CEO John Standley.

“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,” Standley added. “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.”

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.

Third Quarter Summary
Revenues from continuing operations for the quarter were $5.4 billion compared to revenues from continuing operations of $5.7 billion in the prior year’s third quarter, a decrease of $315.9 million or 5.6 percent. Retail Pharmacy Segment revenues were $4.0 billion and decreased 3.0 percent compared to the prior year period 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 decreased 12.2 percent compared to the prior year period, due to an election to participate in fewer Medicare Part D regions and a decline in commercial business.

Same store sales from continuing operations for the quarter decreased 2.5 percent from the prior year, consisting of a 3.5 percent decrease in pharmacy sales and a 0.5 percent decrease in front-end sales. Pharmacy sales included an approximate 198 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores, adjusted to 30-day equivalents, decreased 2.4 percent 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 percent of total drugstore sales.

Net loss from continuing operations was $18.2 million or $0.02 per diluted share compared to last year’s third quarter net income from continuing operations of $23.6 million or $0.02 per diluted share. The decline in operating results was due primarily to a decline in Adjusted EBITDA, partially offset by a higher income tax benefit.

Adjusted net income from continuing operations was $1.6 million or $0.00 per diluted share compared to last year’s third quarter adjusted net income from continuing operations of $26.8 million or $0.03 per diluted share. The decline in Adjusted net income was due to a decline in Adjusted EBITDA, partially offset by a reduction in adjusted income tax expense.

Adjusted EBITDA from continuing operations (which is reconciled to net loss from continuing operations in the attached tables) was $129.2 million or 2.4 percent of revenues for the third quarter compared to $191.3 million or 3.4 percent of revenues for the same period last year. The decline in Adjusted EBITDA was due to a decrease of $50.0 million in the Retail Pharmacy Segment and $12.1 million in the Pharmacy Services Segment. The decrease in the Retail Pharmacy Segment EBITDA was primarily driven by a decline in pharmacy gross profit, due to a continued decline in reimbursement rates which the company was unable to fully offset with generic purchasing efficiencies, as well as lower script counts. Also impacting the decrease was lower net favorable legal settlements of approximately $15 million as compared to the prior year. These items were partially offset by an improvement in front-end gross profit dollars and effective cost control. The decrease in the Pharmacy Services Segment EBITDA was primarily driven by the decline in revenues described above. Results from continuing operations are fully burdened for corporate administration costs that support both continuing and discontinued operations. As the sale of stores to WBA occurs, the Company will perform certain back-office functions under a Transition Services Agreement (TSA) for these stores and will receive a fee for those services. This fee would be $96 million on an annualized basis, assuming all of the divested stores are covered under this agreement. Quarterly and year-to-date results from continuing operations for both years do not include $24 million and $72 million of fees, respectively, that would be earned if all stores were being supported under the TSA Agreement.

In the third quarter, the company opened 1 store, relocated 9 stores, remodeled 20 stores and expanded 1 store, bringing the total number of wellness stores chainwide to 2,505. The company sold 97 stores to WBA and closed 7 stores, resulting in a total store count of 4,404 at the end of the third quarter.
more detail at:  https://www.riteaid.com/corporate/news?p_p_id=riteaidpressreleases_WAR_riteaidpressreleasesportlet&p_p_lifecycle=0&p_p_state=normal&p_p_mode=view&p_p_col_id=column-3&p_p_col_pos=2&p_p_col_count=3&_riteaidpressreleases_WAR_riteaidpressreleasesportlet_action=getNewsRoomDetail&itemNumber=2086

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