Market Overview

Rite Aid Narrows Loss For Q4, Fiscal 2012, Misses Estimates

Rite Aid Corporation (NYSE: RAD) reported narrower losses for the fourth quarter and full fiscal 2012 compared with the previous year, but still missed consensus estimates on expected losses.

Rite Aid said the company lost $0.18 per diluted share in the fourth quarter, compared to $0.24 in the previous year. The loss was 4 cent over what analysts had expected for the quarter.

Revenues increased 10.7 percent to $7.1 billion for the fourth quarter. Increased same store sales, fewer store closings and an extra week to the period contributed to the increase. The extra week accounted for 7 percent of the revenue increase, the company said in the earnings call. Same store sales tacked on a positive 3 percent increase, 1.6 percent in the front end and 3.8 percent in the pharmacy. Pharmacy sales benefited from a decrease in pharmacies in the Express Scripts pharmacy benefit management network, which offset negative impact from a rise in the generics mix. The company also noted a negative impact from the weaker flu season, which had an estimated impact of 100 basis points on script counts.

The rise in revenue was offset by increases in cost of goods sold in the fourth quarter. Front store inflation of 2.2 percent was significantly up from 50 basis points a year ago, the company noted, whereas pharmacy inflation was up 8.2 percent compared to 5 percent a year ago. COGS pressure was offset by a relative reduction of SG&A as a percent of net sales (65 basis point improvement in relation to net sales, as well as significantly lower costs related to fewer store closures (to the tune of 1.6 percent of net sales).

For the full year, loss per diluted share was $0.43, down from $0.64 in 2011 but 5 cent worse than consensus estimates. Revenues of $26.1 billion were up 3.6 percent on 2011, primarily by an increase in comps as well as the extra week in the year. The bottom line was helped by increases in adjusted EBITDA lower depreciation and amortization, lower lease termination and impairment charges and an income tax benefit.

Net net, the company's efforts to expand its pharmacy and clinical services, primarily through Wellness+, are having an impact on long-term profitability, as are various cost initiatives in procurement, supply chain, debt reduction etc.

For 2013, the company expected generic introductions and a challenging reimbursement environment to continue to pressure the company's bottom line, partially offset by continued Express Scripts participation reductions. The company expects its net loss to come between $0.13 and $0.31 per share.

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