Rite Aid Falls on Lower Guidance, May Comps Up - Analyst Blog

Drugstore chain retailer, Rite Aid Corporation RAD came up with its sales results for May as well as the first quarter of fiscal 2015, yesterday. Additionally, the company outlined its preliminary earnings results for the first quarter and based on the same, lowered its forecast for fiscal 2015.

The trimming of earnings guidance for the fiscal year shook the shares of Rite Aid, which rolled down 7.41% on the index during yesterday's trading session.

Rite Aid's comparable store sales (comps) for the five weeks ended May 31, 2014 rose 3.5%. The improvement reflected an increase in front-end and pharmacy comps as well as higher prescription count at comparable stores.

Pharmacy comps for May were up 5.0%, which included a negative impact of nearly 156 basis points from generic drug introduction. Front-end comps improved by a marginal 0.5%, while prescription count at comparable stores rose 3.2%.

Rite Aid's total drugstore sales for the month stood at $2.484 billion, up 2.5% from the year-ago figure of $2.423 billion. Prescription sales constituted 68.0% of the total drugstore sales while third-party prescription sales accounted for 97.4% of pharmacy sales.

Further, the nation's third largest drugstore chain in terms of store count following Walgreen Co. WAG and CVS Caremark Corp. CVS, reported a 3.1% rise in comps for first quarter fiscal 2015 (13 weeks ended May 31, 2014). The increase was driven by 4.6% growth in pharmacy comps and 2.3% rise in prescription count at comparable stores, while front-end comps for the quarter remained flat.

Total drugstore sales for the quarter grew 2.6% to $6.425 billion against $6.264 billion in the year-ago comparable period. Prescription sales constituted 68.4% of total drugstore sales. Third-party prescription sales accounted for 97.4% of pharmacy sales.

Rite Aid, which competes with Herbalife Ltd. HLF, also reported preliminary results for the first quarter, projecting adjusted EBITDA in the range of $275–$285 million, net income of about $35–$45 million and earnings per share of nearly 4 cents. The projected earnings for the quarter stand below the Zacks Consensus Estimate of 7 cents per share.

The company also highlighted that its adjusted EBITDA for the first quarter will trail its prior-year results as the company witnessed higher-than-expected drug costs and reimbursement rate reductions in the first quarter of this year. The company hopes to report first quarter results on May 19, 2014.

Based on the company's projections for the first quarter and anticipated reductions in generic purchase price for the rest of the year, the company trimmed its adjusted EBITDA, net income and earnings per share forecasts for fiscal 2015. However, it retained its sales, comps and capital expenditure targets for the year.

The company now expects adjusted EBITDA for fiscal 2015 to range from $1.275–$1.350 billion compared with $1.325–$1.4 billion guided earlier. Net income forecast for the fiscal year is slashed to $298–$408 million range versus $313.0–$423.0 million expected earlier. As a result, full year earnings per share are now estimated in the range of 30–40 cents as against the earlier forecast of 31–42 cents.

Though the diminished forecast for the year is disappointing, the company's sustained focus on expanding pharmacy and clinical services through its Wellness+ customer loyalty program and remodeling of wellness stores raise our hopes. We believe that such measures will enable the company to broaden its customer base and boost top- and bottom-line performances. Rite Aid currently has a Zacks Rank #1 (Strong Buy).