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Rite Aid Lowers Guidance After Profit Tumbles

Rite Aid Corp. (NYSE: RAD) reported second-quarter fiscal 2016 results before markets opened Thursday. The drug store chain reported quarterly diluted earnings per share (EPS) of $0.02 on revenues of $7.7 billion. In the same period a year ago, Rite Aid reported EPS of $0.13 on revenue of $6.52 billion. Second-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.04 and $7.57 billion in revenue.

The company attributed the lower net income primarily to a $33.2 million loss on debt retirement related to the redemption of the company’s 8.00% senior secured notes, as well as higher depreciation and amortization expense related to its acquisition of EnvisionRx, and an increase in capital spending, higher interest and transaction costs incurred in connection with that acquisition. There was also the cycling of a prior year benefit of approximately $40 million related to the company’s transition to its new drug purchasing and delivery arrangement with McKesson.

Net income for the quarter totaled $21.5 million and adjusted EBITDA came in at $346.8 million, 4.5% of revenues. As a percentage of revenue, adjusted EBITDA fell year over year from 5.6%.

Same-store sales rose 2.1% in the quarter. Front-end sales rose 0.3% and pharmacy sales were up 2.8%, including a negative impact of 223 basis points due to new generic drug introductions. The number of prescriptions filled at same stores rose 0.2%, and prescription sales accounted for 69.3% of total sales. Third-party prescription revenue totaled 97.8% of pharmacy sales.

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The company updated its guidance to account for the closing of the deal for EnvisionRx in late June. Full fiscal year 2016 revenue is now forecast in a range of $30.8 billion to $31.1 billion, with drugstore sales in a range of $26.7 billion to $27 billion. Same-store sales are expected to rise in range of 1.5% to 2.5%, and EPS is forecast in a range of $0.12 to $0.19.

Rite Aid narrowed its revenue forecast range, compared to its forecast at the end of the first quarter, raising the low end and lowering the top end. Same-store sales growth was cut by 2 percentage points on either end of the range, and the EPS forecast has dropped by two cents at the low end and by three cents at the high end of the prior range. Current consensus estimates call for full-year revenues of $30.86 billion and EPS of $0.21.

The company’s CEO said:

The second quarter was pivotal for Rite Aid as we completed the acquisition of EnvisionRx and worked as a team to accelerate our transformation into a retail healthcare company. EnvisionRx made positive contributions to our performance as our Pharmacy Services Segment delivered results that were in line with our expectations.

The miss on profits and the overall lowering of full-year forecasts will put plenty of downward pressure on Rite Aid’s shares Thursday.

Shares traded down about 5.7% in premarket trading Thursday morning, at $8.10 in a 52-week range of $4.42 to $9.47. Thomson Reuters had a consensus analyst price target of $10.05 before the results were announced.

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By Paul Ausick