CAMP HILL, Pa. — Adding fuel to its turnaround, Rite Aid Corp. closed out fiscal 2013 with a profit — its first in six years — and in the fourth quarter posted its second consecutive quarter of net income.
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The earnings for the fourth quarter and full year easily beat Wall Street’s consensus forecast and marked a financial high point for the company, according to chairman, president and chief executive officer John Standley.
Rite Aid said Thursday that for the fiscal 2013 fourth quarter ended March 2, net income came in at $123.1 million, or 13 cents per diluted share, compared with a net loss of $161.3 million, or 18 cents per diluted share, a year earlier. Analysts, on average, had projected a loss of 2 cents per share for the fiscal 2013 fourth quarter, with estimates ranging from a low of a 13 cents per share loss to a high of 2 cents per share in earnings, according to Thomson Financial.
Rite Aid attributed the earnings improvement to a gain in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and a LIFO credit from generic drug deflation, partially offset by a loss on debt retirement due to refinancing completed during the quarter.
The fourth-quarter result meant that Rite Aid finished fiscal 2013 with a profitable second half. In the fiscal 2013 third quarter ended Dec. 1, the drug chain reported its first quarterly profit in more than five years.
Net income for all of fiscal 2013, meanwhile, climbed to $118.1 million, or 12 cents per diluted share, from a net loss of $368.6 million, or 43 cents per diluted share, in fiscal 2012. The company said the increase in adjusted EBITDA and LIFO credit from generic drug deflation helped lift earnings for the year, partially offset by a higher loss on debt retirement.
The average analyst estimate was for a loss of 1 cent per share for fiscal 2013, with the forecast running from a low of a 3 cents per share loss to a high of a 1 cent per share profit.
"Thanks to the hard work of our entire Rite Aid team, we generated outstanding results in the fourth quarter, which helped us to deliver one of the best full-year performances in company history," Standley said in a statement. "In addition to setting a new company record for full-year adjusted EBITDA, we generated full-year net income for the first time since fiscal 2007."
Adjusted EBITDA in the fiscal 2013 fourth quarter totaled $340.3 million, or 5.3% of revenue, compared with $274.3 million, or 3.8% of revenue, a year earlier. Rite Aid cited an improved pharmacy gross margin, stemming from new generic drugs and a gain in prescription count at comparable stores, as helping fuel the EBITDA increase, partially offset by the impact of one less week in the quarter.
For the full year, adjusted EBITDA was $1.13 billion, or 4.4% of revenue, versus $942.9 million, or 3.6% of revenue, in fiscal 2012. Gross profit from increases in generic drugs dispensed and prescriptions filled at comparable stores helped drive the fiscal 2013 EBITDA gain, Rite Aid said.
Investors were encouraged by Rite Aid’s fourth quarter and fiscal 2013 performance. As of mid-morning trading on Thursday, the company’s share price jumped 18%, or 33 cents, to $2.12.
"For Rite Aid, being able to report these results is a great moment that has been many years in the making," Standley stated. "I’m very proud of our nearly 90,000 associates, who have worked together to execute key initiatives, grow sales, manage expenses and serve our customers like never before. Together, we are successfully transforming Rite Aid into a true neighborhood destination for health and wellness. As a result, our company is stronger and better-equipped to meet the individual wellness needs of our valued customers and patients."
On the revenue side, Rite Aid saw sales decline 9.7% to $6.5 billion in the fiscal 2013 fourth quarter, which had 13 weeks, from $7.1 billion a year earlier. The retailer noted that the decrease stems mainly from one less week in the quarter and the impact of lower-priced generics on pharmacy sales.
Same-store sales for the fourth quarter were down 2% year over year, reflecting a 0.3% gain in the front end and a 3.1% decrease in the pharmacy.
Rite Aid said quarterly pharmacy sales got a lift from a 3% increase in prescriptions filled in comparable stores, which was more than offset by a 659-basis-point negative impact from new generics. The company pointed out that new generics, however, had a positive impact on gross profit. Prescription sales accounted for 66.5% of total drug store sales in the quarter
For the 52-week 2013 fiscal year, Rite Aid’s revenue fell 2.8% to $25.4 billion from $26.1 billion in fiscal 2012, which had 53 weeks. Lower-cost generics negatively impacted pharmacy sales during fiscal 2013, the company said.
Comparable-store sales for fiscal 2013 dipped 0.3%, including a gain of 1.4% in the front end and a 1% decrease in the pharmacy. Rite Aid added that pharmacy sales benefited from a 3.4% increase in comp-store prescription count, which was more than offset by an 665-basis-point negative impact from new generics. Prescription sales represent 67.6% of overall drug store sales for the year.
During fiscal 2013, Rite Aid relocated 13 stores, remodeled 516 stores and closed 44 stores. As of March 2, the chain operated 4,623 drug stores, including 797 of the retailer’s "wellness store" locations.
In the fourth quarter, the company relocated four stores, remodeled 112 stores and closed 10 stores. Stores in operation at the end of the fourth quarter totaled 4,623. The Company had 797 wellness stores at year end.
Looking ahead to fiscal 2014, Rite Aid projects net earnings of $45 million to $200 million, or 4 cents to 20 per diluted share. On average, analysts forecast fiscal 2014 earnings at 3 cents per share, with estimates ranging from a low of a 10 cents per share loss to a high of 11 cents per share in profit.
Rite Aid said its fiscal 2014 guidance reflects expected benefits from wellness store remodels, its wellness+ customer loyalty program and other efforts to spur sales and hone operational efficiencies.
The company added that its outlook, too, incorporates the cycling of the prescriptions from the Walgreens-Express Scripts contract dispute, as well as planned wage and benefit increases, the softening impact of new generics and a challenging pharmacy reimbursement environment. Capital expenditures are expected to be about $400 million.
Rite Aid forecasts its fiscal 2014 sales at $24.9 billion to $25.3 billion, with same-store sales ranging from a decrease of 0.75% to an increase of 0.75%. Adjusted EBITDA is projected at $1.075 billion to $1.175 billion.
