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CAMP HILL, Pa. — After operating in the black for two consecutive quarters, Rite Aid Corp. rolled to its first full-year profit in six years.
For the 52-week 2013 fiscal year ended March 2, Rite Aid swung to net income of $118.1 million from a loss of $368.6 million in fiscal 2012, which had 53 weeks. In the 2013 fourth quarter, the drug chain notched net earnings of $123.1 million, compared with a loss of $163.8 million a year earlier.
The fourth quarter result kept up the momentum from the third quarter, when the chain had its first quarterly profit in over five years.
Although results for the final quarter and full year were aided by a significant LIFO credit, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, LIFO and various special items) still climbed at a strong double-digit pace.
The turnaround also came despite continued weakness at the top line, as revenue slipped 2.8% to $25.39 billion from $26.12 billion. Management attributed the sales downturn primarily to the impact of fiscal 2012’s additional week and the dilutive effect of lower-cost generic drugs on pharmacy sales.
In the fourth quarter, revenue slid 9.7% to $6.46 billion from $7.15 billion, reflecting the impact of the 14th week in the fiscal 2012 period. On an equal-week basis, sales fell 3%.
“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,” chairman, president and chief executive officer John 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.
“For Rite Aid, being able to report these results is a great moment that has been many years in the making. 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.”
On an equal-week basis, same-store sales declined 2% in the fourth quarter as a 0.3% uptick in the front end was offset by a 3.1% drop in the pharmacy.
Pharmacy sales benefited from a 3% rise in same-store prescription count, but that gain was eclipsed by a 659-basis-point negative impact from introductions of lower-priced generic drugs. Still, the influx of new generics helped fuel strong improvements in gross margin, according to Rite Aid.
All told, prescriptions accounted for 66.5% of total drug store sales; third-party transactions garnered a 96.6% share of the pharmacy business.
For the year, same-store sales dipped 0.3%, reflecting a 1.4% gain in the front end and a 1% decline in the pharmacy. Script count in same stores rose 3.4%, but that gain was wiped out by a 665-basis-point negative impact from new generics. Prescriptions drove 67.6% of total drug store sales; third-party transactions were 96.6% of pharmacy sales.
Fourth quarter earnings got a boost from a $175.4 million LIFO credit, compared with a $121.2 million charge a year ago, with Rite Aid citing “significant generic drug deflation.” But that benefit was partially offset by a $122.7 million loss on debt retirements, compared with $16.1 million in the fiscal 2012 period.
Excluding the effects of LIFO, the debt retirement loss and other special items, adjusted EBITDA vaulted 24% to $34.3 million, or 5.27% of revenue. On an equal-week basis, adjusted EBITDA soared 32.6% to $340.3 million. For the year, adjusted EBITDA rose 19.7% to $1.13 billion, or 4.44% of revenue.
In fiscal 2013 Rite Aid relocated 13 stores, remodeled 516 and closed 44, ending the year with 4,623 units, including 797 “wellness store” locations.
