Rite Aid Falls Short In Q1

As Rite Aid prepares to be acquired by Walgreens, which is expected to close in the second half of the year, the drug store chain slipped in its first quarter, posting a net loss. 

For its first fiscal quarter ended May 28, Rite Aid Corp. posted a net loss of $4.6 million, or zero cents per diluted share, versus net income of $18.8 million, or two cents per diluted share, in the year-earlier period. Adjusted net income was $14.5 million, or one cent per diluted share, versus $23.7 million, or two cents per diluted share, in the year-prior quarter.

An analyst average estimate published by MarketBeat called for adjusted net income of five cents per diluted share.

An increase in amortization expense related to EnvisionRx, Rite Ad's pharmacy benefits management business, a higher LIFO charge and a decrease in adjusted net income, all contributed to the earnings decline, the retailer stated.

Comparable store sales for the quarter increased 0.4% over the prior year, with front end sales, including general merchandise such as home goods, up 1.2%. Net sales were $8.18 billion versus $6.65 billion in the 2015 quarter.

“Our results for the first quarter reflect strong performance in our pharmacy services segment and our front-end business as well as good overall expense control,” said Rite Aid chairman and CEO John Standley. “Our challenge was pharmacy reimbursement rate pressure, which we were unable to offset largely due to drug purchasing efficiencies that did not meet our expectations. While drug cost reductions will continue to be short of our expectations in the near term, we anticipate improvements over the second half of the fiscal year. As we work to meet this challenge, we remain focused on executing our highly successful sales initiatives like wellness+ with Plenti and the wellness store program while also making strategic investments for growth and delivering a consistently outstanding customer experience.”

As previously announced, Rite Aid and Walgreens Boots Alliance entered into a definitive agreement under which Walgreens will acquire all outstanding shares of Rite Aid for $9 per share in cash, for a total enterprise value of approximately $16.6 billion, including acquired net debt. The board of directors of both companies and Rite Aid’s shareholders have approved the transaction, which is subject to certain conditions. The transaction is expected to close in the second half of the year.

Rite Aid operates 4,560 stores.