Rite Aid Reports Fiscal 2020 First Quarter Results

• First Quarter Retail Pharmacy Segment Same Store Sales Increased 1.4 Percent
  • Same Store 30-Day Equivalent Prescription Count Grew 3.7 Percent
  • Front End Same Store Sales, Excluding Cigarettes and Tobacco Products, Grew 0.3 Percent

• First Quarter Net Loss from Continuing Operations of $99.3 Million or $1.88 Per Share, Compared to the Prior Year First Quarter Net Loss of $41.7 Million or $0.79 Per Share
  • Current Quarter Net Loss from Continuing Operations Includes $43.4 Million in Pre-Tax Restructuring-Related Costs

• First Quarter Adjusted Net Loss from Continuing Operations of $7.5 Million or $0.14 Per Share, Compared to the Prior Year First Quarter Adjusted Net Income of $1.0 Million or $0.02 Per Share

• First Quarter Adjusted EBITDA from Continuing Operations of $110.3 Million, Compared to the Prior Year First Quarter Adjusted EBITDA of $138.0 Million

• Rite Aid Confirms Fiscal 2020 Outlook

Rite Aid Corporation RAD today reported operating results for its first fiscal quarter ended June 1, 2019.

For the first quarter, the company reported net loss from continuing operations of $99.3 million, or $1.88 per share, Adjusted net loss from continuing operations of $7.5 million, or $0.14 per share, and Adjusted EBITDA from continuing operations of $110.3 million, or 2.1 percent of revenues.

"While first quarter results did not meet our expectations due to prescription reimbursement rate pressure in the Retail Pharmacy Segment and margin compression in the Pharmacy Services Segment, we are pleased with the improvements in our top-line growth and operating efficiency in the Retail Pharmacy Segment and Medicare Part D revenue growth in the Pharmacy Services Segment," said Rite Aid CEO John Standley. "Looking forward, enhancements made to the McKesson supply agreement, generic purchasing improvements, revenue growth and the benefits of actions we have taken to reduce costs should drive improved results in both segments for the remainder of the year. We expect to meet our full-year guidance. In addition, through our ‘Path to the Future' transformation initiative, we are identifying significant opportunities to drive further growth and operating efficiency in fiscal 2021, with a focus on reducing our reliance on traditional pharmacy reimbursement rate models."

First Quarter Summary

Revenues from continuing operations for the quarter were $5.37 billion compared to revenues from continuing operations of $5.39 billion in the prior year's quarter. Retail Pharmacy Segment revenues were $3.86 billion and decreased 0.8 percent compared to the prior year period due to a reduction in store count, partially offset by an increase in same store sales. Revenues in the Pharmacy Services Segment were $1.57 billion, an increase of 1.5 percent compared to the prior year period, which was due to an increase in Medicare Part D revenue.

Same store sales from Retail Pharmacy continuing operations for the first quarter increased 1.4 percent over the prior year, consisting of a 2.3 percent increase in pharmacy sales and a 0.3 percent decrease in front-end sales. Front-end same store sales, excluding cigarettes and tobacco products, increased 0.3 percent. Pharmacy sales were negatively impacted by approximately 207 basis points as a result of new generic introductions. The number of prescriptions filled in same stores, adjusted to 30-day equivalents, increased 3.7 percent over the prior year period resulting primarily from the company's initiatives to drive medication adherence and script growth. Prescription sales from continuing operations accounted for 66.9 percent of total drugstore sales.

Net loss from continuing operations was $99.3 million or $1.88 per share compared to last year's first quarter net loss from continuing operations of $41.7 million or $0.79 per share. The increase in net loss was due primarily to higher restructuring-related costs, a decrease in Adjusted EBITDA, and higher income tax expense, partially offset by a reduction in depreciation and amortization expense and lease termination and impairment charges.

Adjusted EBITDA from continuing operations was $110.3 million or 2.1 percent of revenues for the first quarter compared to Adjusted EBITDA from continuing operations of $138.0 million or 2.6 percent of revenues for the same period last year, a decrease of $27.7 million. The Retail Pharmacy Segment Adjusted EBITDA from continuing operations decreased $20.1 million compared to the prior year due primarily to weaker pharmacy gross profit caused by prescription reimbursement rate pressure that the company was not able to fully offset with both generic drug purchasing efficiencies and increases in prescriptions filled in comparable stores. The reduction in reimbursement rates was partially caused by a $12.5 million charge for a change in estimated exposure for a retroactive billing from a state Medicaid agency. These negative variances were partially offset by an improvement in Adjusted EBITDA selling, general and administrative ("SG&A") expense of $23.7 million. This improvement was driven by lower salaries and benefit expense relating to the recent corporate restructuring that more than offset the reduction in Transition Services Agreement ("TSA") fee income from Walgreens Boots Alliance ("WBA") and strong labor and expense control at the stores. The Pharmacy Services Segment Adjusted EBITDA decreased $7.5 million over the prior year due to margin compression in the company's commercial business and other operating investments to support current year and future growth.

In the first quarter, the company remodeled 27 stores, bringing the total number of wellness stores chainwide to 1,787. Additionally, the company opened 1 store and closed 4 stores, resulting in a total store count of 2,466 at the end of the first quarter.

Outlook for Fiscal 2020

Rite Aid is confirming its fiscal 2020 outlook. The company's outlook assumes a continued decline in prescription reimbursement rates, partially offset by continued prescription count growth, improvements in drug costs and continued strong SG&A expense control. The company expects the quarterly run rate of Adjusted EBITDA for fiscal 2020 to improve given expectations for same store prescription growth, the timing of drug purchasing improvements and actions we are taking to reduce costs.

Rite Aid said it expects sales to be between $21.5 billion and $21.9 billion in fiscal 2020 with same store sales expected to range from an increase of 0.0 percent to an increase of 1.0 percent over fiscal 2019.

Net loss is expected to be between $170.0 million and $220.0 million.

Adjusted EBITDA is expected to be between $500.0 million and $560.0 million.

Adjusted net (loss) income per share is expected to be between a loss of $0.14 and income of $0.72.

Capital expenditures are expected to be approximately $250 million.

Conference Call Broadcast

Rite Aid will hold an analyst call at 5:00 p.m. Eastern Time today with remarks by Rite Aid's management team. The call will be simulcast via the internet and can be accessed at www.riteaid.com in the conference call section of investor information. A playback of the call will also be available by telephone beginning at 8:00 p.m. Eastern Time today until 11:59 p.m. Eastern Time on June 28, 2019. The playback number is 1-855-859-2056 from within the U.S. and Canada or 1-404-537-3406 from outside the U.S. and Canada with the reservation number 4580936.

Rite Aid is one of the nation's leading drugstore chains with 2,466 stores in 18 states. Information about Rite Aid, including corporate background and press releases, is available through Rite Aid's website at www.riteaid.com.

Cautionary Statement Regarding Forward-Looking Statements

Statements in this release that are not historical, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements regarding Rite Aid's outlook for fiscal 2020; Rite Aid's competitive position and ability to realize its growth initiatives and operating efficiencies; and any assumptions underlying any of the foregoing. Words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," and "will" and variations of such words and similar expressions are intended to identify such forward-looking statements.

These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, our high level of indebtedness and our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our debt agreements; general economic, industry, market, competitive, regulatory and political conditions; our ability to improve the operating performance of our stores in accordance with our long term strategy; the impact of private and public third-party payers continued reduction in prescription drug reimbursements and efforts to encourage mail order; our ability to manage expenses and our investments in working capital; outcomes of legal and regulatory matters; changes in legislation or regulations, including healthcare reform; our ability to achieve the benefits of our efforts to reduce the costs of our generic and other drugs; risks related to the pending sale of the remaining Rite Aid distribution centers and related assets to Walgreens Boots Alliance, Inc. ("WBA"), including the possibility that the transactions may not close, or the business of Rite Aid may suffer as a result of uncertainty surrounding the pending transactions; our ability to successfully execute and achieve benefits from our leadership transition plan and organizational restructuring, including our chief executive officer search process, and to manage the transition to a new chief executive officer and other management; the potential for operational disruptions due to, among other things, concerns of management, employees, current and potential customers, other third parties with whom we do business and shareholders; the success of any changes to our business strategy that may be implemented under our new chief executive officer and other management; our ability to achieve cost savings through the organizational restructurings within the anticipated timeframe, if at all; possible changes in the size and components of the expected costs and charges associated with the organizational restructuring plan; and the outlook for and future growth of the Company. These and other risks, assumptions and uncertainties are more fully described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K and in other documents that we file or furnish with the Securities and Exchange Commission, which you are encouraged to read. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Rite Aid expressly disclaims any current intention to update publicly any forward-looking statement after the distribution of this release, whether as a result of new information, future events, changes in assumptions or otherwise.

Reconciliation of Non-GAAP Financial Measures

Rite Aid separately reports financial results on the basis of Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Adjusted EBITDA which are non-GAAP financial measures. See the attached tables for a reconciliation of Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Adjusted EBITDA to net income (loss), and net income (loss) per diluted share, which are the most directly comparable GAAP financial measures. Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share exclude amortization expense, merger and acquisition-related costs, non-recurring litigation settlement, loss on debt retirements, LIFO adjustments, goodwill and intangible asset impairment charges, restructuring-related costs and the WBA merger termination fee. The current calculations of Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share reflect a modification made in the second quarter of fiscal 2019 to add back all amortization expenses rather than the amortization of EnvisionRx intangible assets only. Adjusted EBITDA is defined as net income (loss) excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, goodwill and intangible asset impairment charges, inventory write-downs related to store closings, loss on debt retirements, the WBA merger termination fee, and other items (including stock-based compensation expense, merger and acquisition-related costs, non-recurring litigation settlement, severance, restructuring-related costs and costs related to facility closures and gain or loss on sale of assets). The current calculation of Adjusted EBITDA reflects a modification made in the second quarter of fiscal 2019 to eliminate the add back of revenue deferrals related to our customer loyalty program and to present amounts previously included within other as separate reconciling items. We further note that the add back of LIFO (credit) charge when calculating Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share removes the entire impact of LIFO (credits) charges, and effectively reflects Rite Aid's results as if the company was on a FIFO inventory basis.

In addition to Adjusted EBITDA, Adjusted Net (Loss) Income and Adjusted Net (Loss) Income per Diluted Share, we occasionally refer to several other Non-GAAP measures, on a less frequent basis, in order to describe certain components of our business and how we utilize them to describe our results. Adjusted EBITDA Gross Profit includes LIFO adjustments, depreciation and amortization (COGS portion only) and other items. The presentation includes a reconciliation of Adjusted EBITDA Gross Profit to Revenue, which is the most directly comparable GAAP financial measure. Adjusted EBITDA SG&A excludes depreciation and amortization (SG&A portion only), stock-based compensation expense, merger and acquisition-related costs, litigation settlement, restructuring-related costs and other items. The presentation includes a reconciliation of Adjusted EBITDA SG&A to Revenue, which is the most directly comparable GAAP financial measure.

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