Rite Aid Earnings Review: Losses Mount Despite Revenue Growth

Rite Aid Corporation (NYSE:RAD) posted mixed fiscal fourth quarter results on Tuesday, April 25. For the quarter ended February, the company reported revenues of $8.54 billion, an increase of 3% over the prior year quarter. The increase in revenues was primarily driven by a 4% increase in pharmacy sales, partially offset by a decline in same store sales and pharmacy services. A significant increase in costs of goods sold and higher impairment charges resulted in the company reporting a net loss of $21 million, or 2 cents a share, against the prior year profit of $65 million or 6 cents a share.

For the full year, Rite Aid’s revenues increased 7% year-over-year to $32.8 billion while net income declined from $165 million in 2016 to $4 million in the last fiscal year. The company attributed the ongoing FTC merger review and higher reimbursement rates as reasons behind its poor performance.

Revenue for fourth quarter increased 3.3% year over year to $8.5 billion. While pharmacy sales primarily contributed to the increase, front end and same store sales were negative on a y-o-y basis. Surprisingly, the Pharmacy Services segment recorded a 1.5% decline in revenues on a y-o-y basis.

Gross margins were marginally lower year over year at about 24%, declining 50 basis points over the prior year quarter. Higher selling, general and administrative expenses (5% increase y-o-y) pushed the operating margins down by 90 basis points over the prior year period. This led to the company reporting a net loss of $21 million, a significant decline from the prior year quarter’s income of $65 million.

By the end of Q4 FY’17, the company had a total of 2,418 wellness stores, which represents about 53% of the entire Rite Aid chain.

Rite Aid is hopeful for a swift conclusion to its ongoing discussions with regulatory authorities pertaining to its merger with Walgreens. The exact number of retail stores Walgreens agrees to divest will determine the per share merger price of the deal, which is expected to be between $6.50 per share (if 1,200 stores are divested) and $7 per share (if 1,000 stores are divested). Both companies have extended the merger deadline through July 31, and expect the deal to close by then.

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