CAMP HILL, Pa.--(BUSINESS WIRE)--Rite Aid Corporation (NYSE:RAD) today reported operating results for its first fiscal quarter ended May 28, 2016.
For the first quarter, the company reported revenues of $8.2 billion, a net loss of $4.6 million, or $0.00 per diluted share, Adjusted net income of $14.5 million, or $0.01 per diluted share and Adjusted EBITDA of $286.0 million, or 3.5 percent of revenues.
“Our results for the first quarter reflect strong performance in our Pharmacy Services Segment and our front-end business as well as good overall expense control,” said Chairman and CEO John Standley. “Our challenge was pharmacy reimbursement rate pressure, which we were unable to offset largely due to drug purchasing efficiencies that did not meet our expectations. While drug cost reductions will continue to be short of our expectations in the near term, we anticipate improvements over the second half of the fiscal year. As we work to meet this challenge, we remain focused on executing our highly successful sales initiatives like wellness+ with Plenti and the Wellness store program while also making strategic investments for growth and delivering a consistently outstanding customer experience.”
First Quarter Summary
Revenues for the quarter were $8.2 billion compared to revenues of $6.6 billion in the prior year’s first quarter, an increase of $1.5 billion or 23.1 percent. Retail Pharmacy Segment revenues were $6.7 billion and increased 0.4 percent compared to the prior year period primarily as a result of an increase in same store sales. Revenues in the company’s Pharmacy Services Segment, which was acquired on June 24, 2015, were $1.6 billion.
Same store sales for the quarter increased 0.4 percent over the prior year, consisting of a 0.1 percent increase in pharmacy sales and a 1.2 percent increase in front-end sales. Pharmacy sales included an approximate 198 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores increased 0.6 percent over the prior year period. Prescription sales accounted for 68.9 percent of total drugstore sales, and third party prescription revenue was 98.0 percent of pharmacy sales.
Net loss was $4.6 million or $0.00 per diluted share compared to last year’s first quarter net income of $18.8 million or $0.02 per diluted share. The decline in operating results is due primarily to an increase in amortization expense related to EnvisionRx, a higher LIFO charge and a decline in Adjusted net income.
Adjusted net income and Adjusted net income per diluted share (which is reconciled to net (loss) income on the attached table) was $14.5 million or $0.01 per diluted share compared to last year’s first quarter Adjusted net income of $23.7 million or $0.02 per diluted share. The decline in Adjusted net income and Adjusted net income per share is due to a decrease in Adjusted EBITDA, partially offset by lower income tax and interest expense.
Adjusted EBITDA (which is reconciled to net (loss) income on the attached table) was $286.0 million or 3.5 percent of revenues for the first quarter compared to $299.3 million or 4.5 percent of revenues for the same period last year. The decline in Adjusted EBITDA is due to a decrease of $54.4 million in the Retail Pharmacy Segment driven by lower pharmacy margin due to lower reimbursement rates that were not offset by purchasing efficiencies and script count growth. An improvement in front end gross profit offset inflationary increases in selling, general and administrative expenses. The decline in Retail Pharmacy Segment Adjusted EBITDA was partially offset by $41.2 million of Pharmacy Services Segment Adjusted EBITDA.
In the first quarter, the company opened 4 stores, relocated 4 stores, and remodeled 79 stores, bringing the total number of wellness stores chainwide to 2,126. The company also acquired 1 store and closed 6 stores, resulting in a total store count of 4,560 at the end of the first quarter. The company also opened 2 clinics in the first quarter, bringing the total to 80.
As previously announced on October 27, 2015, Rite Aid and Walgreens Boots Alliance, Inc. (“WBA”) entered into a definitive agreement under which WBA will acquire all outstanding shares of Rite Aid for $9.00 per share in cash, for a total enterprise value of approximately $16.6 billion, including acquired net debt. The board of directors of both companies and Rite Aid’s shareholders have approved the transaction, which is subject to certain conditions, including, among others, the receipt of approval under applicable antitrust laws and other customary closing conditions. The transaction is expected to close in the second half of calendar 2016.
Rite Aid is one of the nation’s leading drugstore chains with 4,560 stores in 31 states and the District of Columbia. 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 and statements regarding the expected timing of the closing of the proposed merger and the ability of the parties to complete such transaction considering the various closing conditions and any assumptions underlying any of the foregoing, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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, market and competitive 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 and risks related to the proposed merger. 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, in the definitive proxy statement that we filed with the Securities and Exchange Commission on December 21, 2015 in connection with the proposed merger, 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. Additionally, there can be no assurance that the proposed merger will be completed, or if it is completed, that it will close within the anticipated time period or that the expected benefits of the proposed merger will be realized. 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
The company separately reports financial results on the basis of Adjusted Net Income, Adjusted Net Income per diluted share, and Adjusted EBITDA, which are non-GAAP financial measures. See the attached tables for a reconciliation of Adjusted Net Income, Adjusted Net Income per diluted share and Adjusted EBITDA to net income, which are the most directly comparable GAAP financial measures. Adjusted Net Income and Adjusted Net Income per diluted share exclude amortization of EnvisionRx intangible assets, merger and acquisition-related costs, loss on debt retirements and LIFO adjustments. Adjusted EBITDA is defined as net income excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, inventory write-downs related to store closings, debt retirements and other items (including stock-based compensation expense, merger and acquisition-related costs, severance for distribution center closures, gain or loss on sale of assets and revenue deferrals related to our customer loyalty program)
| RITE AID CORPORATION AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (Dollars in thousands) | ||||||||
| (unaudited) | ||||||||
| May 28, 2016 | February 27, 2016 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 144,840 | $ | 124,471 | ||||
| Accounts receivable, net | 1,679,166 | 1,601,008 | ||||||
| Inventories, net of LIFO reserve of $1,020,147 and $1,006,396 | 2,623,886 | 2,697,104 | ||||||
| Prepaid expenses and other current assets | 107,293 | 128,144 | ||||||
| Total current assets | 4,555,185 | 4,550,727 | ||||||
| Property, plant and equipment, net | 2,257,795 | 2,255,398 | ||||||
| Goodwill | 1,713,475 | 1,713,475 | ||||||
| Other intangibles, net | 964,709 | 1,004,379 | ||||||
| Deferred tax assets | 1,544,890 | 1,539,141 | ||||||
| Other assets | 218,893 | 213,890 | ||||||
| Total assets | $ | 11,254,947 | $ | 11,277,010 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current maturities of long-term debt and lease financing obligations | $ | 25,640 | $ | 26,848 | ||||
| Accounts payable | 1,663,436 | 1,542,797 | ||||||
| Accrued salaries, wages and other current liabilities | 1,290,693 | 1,427,250 | ||||||
| Total current liabilities | 2,979,769 | 2,996,895 | ||||||
| Long-term debt, less current maturities | 6,899,025 | 6,914,393 | ||||||
| Lease financing obligations, less current maturities | 49,737 | 52,895 | ||||||
| Other noncurrent liabilities | 734,912 | 731,399 | ||||||
| Total liabilities | 10,663,443 | 10,695,582 | ||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders' equity: | ||||||||
| Common stock | 1,048,768 | 1,047,754 | ||||||
| Additional paid-in capital | 4,835,634 | 4,822,665 | ||||||
| Accumulated deficit | (5,245,798 | ) | (5,241,210 | ) | ||||
| Accumulated other comprehensive loss | (47,100 | ) | (47,781 | ) | ||||
| Total stockholders' equity | 591,504 | 581,428 | ||||||
| Total liabilities and stockholders' equity | $ | 11,254,947 | $ | 11,277,010 | ||||
| RITE AID CORPORATION AND SUBSIDIARIES | |||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
| (Dollars in thousands, except per share amounts) | |||||||
| (unaudited) | |||||||
| Thirteen weeks ended | Thirteen weeks ended | ||||||
| May 28, 2016 | May 30, 2015 | ||||||
| Revenues | $ | 8,184,181 | $ | 6,647,561 | |||
| Costs and expenses: | |||||||
| Cost of revenues | 6,289,881 | 4,788,031 | |||||
| Selling, general and administrative expenses | 1,793,247 | 1,699,585 | |||||
| Lease termination and impairment charges | 5,781 | 5,022 | |||||
| Interest expense | 105,113 | 123,607 | |||||
| Loss on sale of assets, net | 1,056 | 39 | |||||
| 8,195,078 | 6,616,284 | ||||||
| (Loss) income before income taxes | (10,897 | ) | 31,277 | ||||
| Income tax (benefit) expense | (6,309 | ) | 12,441 | ||||
| Net (loss) income | $ | (4,588 | ) | $ | 18,836 | ||
| Basic and diluted (loss) earnings per share: | |||||||
| Numerator for (loss) earnings per share: | |||||||
| (Loss) Income attributable to common stockholders - basic and diluted | $ | (4,588 | ) | $ | 18,836 | ||
| Denominator: | |||||||
| Basic weighted average shares | 1,042,437 | 986,691 | |||||
| Outstanding options and restricted shares, net | - | 22,461 | |||||
| Diluted weighted average shares | 1,042,437 | 1,009,152 | |||||
| Basic and diluted (loss) income per share | $ | (0.00 | ) | $ | 0.02 | ||
| RITE AID CORPORATION AND SUBSIDIARIES | |||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME | |||||||
| (In thousands) | |||||||
| (unaudited) | |||||||
| Thirteen weeks ended | Thirteen weeks ended | ||||||
| May 28, 2016 | May 30, 2015 | ||||||
| Net (loss) income | $ | (4,588 | ) | $ | 18,836 | ||
| Other comprehensive income (loss): | |||||||
| Defined benefit pension plans: | |||||||
|
Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost, net of $451 and $398 tax expense |
681 | 597 | |||||
| Total other comprehensive income | 681 | 597 | |||||
| Comprehensive (loss) income | $ | (3,907 | ) | $ | 19,433 | ||
| RITE AID CORPORATION AND SUBSIDIARIES | ||||||||
| SUPPLEMENTAL SEGMENT OPERATING INFORMATION | ||||||||
| (Dollars in thousands) | ||||||||
| (unaudited) | ||||||||
| Thirteen weeks ended | Thirteen weeks ended | |||||||
| May 28, 2016 |
|
May 30, 2015 | ||||||
| Retail Pharmacy Segment | ||||||||
| Revenues (a) | $ | 6,675,548 | $ | 6,647,561 | ||||
| Cost of revenues (a) | 4,870,181 | 4,788,031 | ||||||
| Gross profit | 1,805,367 | 1,859,530 | ||||||
| LIFO charge | 13,751 | 5,987 | ||||||
| FIFO gross profit | 1,819,118 | 1,865,517 | ||||||
| Gross profit as a percentage of revenues | 27.04 | % | 27.97 | % | ||||
| LIFO charge as a percentage of revenues | 0.21 | % | 0.09 | % | ||||
| FIFO gross profit as a percentage of revenues | 27.25 | % | 28.06 | % | ||||
| Selling, general and administrative expenses | 1,723,903 | 1,699,585 | ||||||
| Selling, general and administrative expenses as a percentage of revenues | 25.82 | % | 25.57 | % | ||||
| Cash interest expense | 99,682 | 102,762 | ||||||
| Non-cash interest expense | 5,429 | 20,845 | ||||||
| Total interest expense | 105,111 | 123,607 | ||||||
| Adjusted EBITDA | 244,827 | 299,263 | ||||||
| Adjusted EBITDA as a percentage of revenues | 3.67 | % | 4.50 | % | ||||
| Pharmacy Services Segment | ||||||||
| Revenues (a) | $ | 1,602,359 | ||||||
| Cost of revenues (a) | 1,513,426 | |||||||
| Gross profit | 88,933 | |||||||
| Gross profit as a percentage of revenues | 5.55 | % | ||||||
| Adjusted EBITDA | 41,175 | |||||||
| Adjusted EBITDA as a percentage of revenues | 2.57 | % | ||||||
| (a) - Revenues and cost of revenues includes $93,726 of inter-segment activity that is eliminated in consolidation. |
| RITE AID CORPORATION AND SUBSIDIARIES | ||||||||
| SUPPLEMENTAL INFORMATION | ||||||||
| RECONCILIATION OF NET (LOSS) INCOME TO ADJUSTED EBITDA | ||||||||
| (In thousands) | ||||||||
| (unaudited) | ||||||||
| Thirteen weeks ended | Thirteen weeks ended | |||||||
| May 28, 2016 | May 30, 2015 | |||||||
| Reconciliation of net (loss) income to adjusted EBITDA: | ||||||||
| Net (loss) income | $ | (4,588 | ) | $ | 18,836 | |||
| Adjustments: | ||||||||
| Interest expense | 105,113 | 123,607 | ||||||
| Income tax (benefit) expense | (6,309 | ) | 12,441 | |||||
| Depreciation and amortization | 138,788 | 109,649 | ||||||
| LIFO charge | 13,751 | 5,987 | ||||||
| Lease termination and impairment charges | 5,781 | 5,022 | ||||||
| Other | 33,466 | 23,721 | ||||||
| Adjusted EBITDA | $ | 286,002 | $ | 299,263 | ||||
| Percent of revenues | 3.49 | % | 4.50 | % | ||||
| RITE AID CORPORATION AND SUBSIDIARIES | |||||||
| SUPPLEMENTAL INFORMATION | |||||||
| ADJUSTED NET INCOME | |||||||
| (Dollars in thousands, except per share amounts) | |||||||
| (unaudited) | |||||||
| Thirteen weeks ended | Thirteen weeks ended | ||||||
| May 28, 2016 | May 30, 2015 | ||||||
| Net (loss) income | $ | (4,588 | ) | $ | 18,836 | ||
| Add back - Income tax (benefit) expense | (6,309 | ) | 12,441 | ||||
| (Loss) income before income taxes | (10,897 | ) | 31,277 | ||||
| Adjustments: | |||||||
| Amortization of EnvisionRx intangible assets | 20,315 | - | |||||
| LIFO charge | 13,751 | 5,987 | |||||
| Merger and Acquisition-related costs | 2,756 | 2,084 | |||||
| Adjusted income before income taxes | 25,925 | 39,348 | |||||
| Adjusted income tax expense | 11,459 | 15,661 | |||||
| Adjusted net income | $ | 14,466 | $ | 23,687 | |||
| Adjusted net income per diluted share: | |||||||
| Numerator for adjusted net income per diluted share: | |||||||
| Adjusted net income | $ | 14,466 | $ | 23,687 | |||
| Denominator: | |||||||
| Basic weighted average shares | 1,042,437 | 986,691 | |||||
| Outstanding options and restricted shares, net | 17,187 | 22,461 | |||||
| Diluted weighted average shares | 1,059,624 | 1,009,152 | |||||
| Adjusted net income per diluted share | $ | 0.01 | $ | 0.02 | |||
| RITE AID CORPORATION AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Dollars in thousands) | ||||||||
| (unaudited) | ||||||||
| Thirteen weeks ended | Thirteen weeks ended | |||||||
| May 28, 2016 | May 30, 2015 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | (4,588 | ) | $ | 18,836 | |||
| Adjustments to reconcile to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 138,788 | 109,649 | ||||||
| Lease termination and impairment charges | 5,781 | 5,022 | ||||||
| LIFO charge | 13,751 | 5,987 | ||||||
| Loss on sale of assets, net | 1,056 | 39 | ||||||
| Stock-based compensation expense | 11,144 | 7,370 | ||||||
| Changes in deferred taxes | (5,749 | ) | 9,540 | |||||
| Excess tax benefit on stock options and restricted stock | (883 | ) | (2,820 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (74,530 | ) | 11,027 | |||||
| Inventories | 59,440 | 56,204 | ||||||
| Accounts payable | 115,646 | 79,715 | ||||||
| Other assets and liabilities, net | (99,912 | ) | 67,266 | |||||
| Net cash provided by operating activities | 159,944 | 367,835 | ||||||
| INVESTING ACTIVITIES: | ||||||||
| Payments for property, plant and equipment | (106,077 | ) | (141,037 | ) | ||||
| Intangible assets acquired | (16,381 | ) | (14,293 | ) | ||||
| Proceeds from dispositions of assets and investments | 3,088 | 2,838 | ||||||
| Net cash used in investing activities | (119,370 | ) | (152,492 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of long-term debt | - | 1,800,000 | ||||||
| Net payments to revolver | (20,000 | ) | (141,000 | ) | ||||
| Principal payments on long-term debt | (5,721 | ) | (5,577 | ) | ||||
| Change in zero balance cash accounts | 2,262 | (34,275 | ) | |||||
| Net proceeds from the issuance of common stock | 2,371 | 3,378 | ||||||
| Excess tax benefit on stock options and restricted stock | 883 | 2,820 | ||||||
| Deferred financing costs paid | - | (34,459 | ) | |||||
| Net cash (used in) provided by financing activities | (20,205 | ) | 1,590,887 | |||||
| Increase in cash and cash equivalents | 20,369 | 1,806,230 | ||||||
| Cash and cash equivalents, beginning of period | 124,471 | 115,899 | ||||||
| Cash and cash equivalents, end of period | $ | 144,840 | $ | 1,922,129 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Payments for property, plant and equipment | $ | 106,077 | $ | 141,037 | ||||
| Intangible assets acquired | 16,381 | 14,293 | ||||||
| Total cash capital expenditures | 122,458 | 155,330 | ||||||
| Equipment received for noncash consideration | 632 | 545 | ||||||
| Equipment financed under capital leases | 1,553 | 800 | ||||||
| Gross capital expenditures | $ | 124,643 | $ | 156,675 | ||||
