- Second Quarter Net Income of $127.8
Million and Net Income per Diluted Share of $0.13, Compared to
Prior Year’s Second Quarter Net Income of $32.8 Million and Net
Income per Diluted Share of $0.03
- Second Quarter Adjusted EBITDA of
$364.2 Million Compared to Adjusted EBITDA of $341.6 Million in
Prior Second Quarter
- Rite Aid Lowers Guidance for Fiscal
2015
Rite Aid Corporation (NYSE:RAD) today reported operating results
for its fiscal second quarter ended August 30, 2014. The company
reported revenues of $6.5 billion, net income of $127.8 million or
$0.13 per diluted share, and Adjusted EBITDA of $364.2 million, or
5.6 percent of revenues.
“In the second quarter, our team of dedicated Rite Aid
associates worked together to execute our strategy and deliver
results that reflect growth in net income and Adjusted EBITDA and
significant increases in same-store sales and prescription count,”
said Rite Aid Chairman and CEO John Standley. “Heading forward,
while we believe that our key initiatives will continue to drive
top-line growth, we are revising our guidance based on lower than
anticipated pharmacy margin in the second half of Fiscal 2015. As
we navigate these headwinds, we will remain focused on growing our
business, generating continued operational efficiencies and
positioning our associates to deliver a consistently outstanding
experience for our customers.”
Second Quarter Summary
Revenues for the quarter were $6.5 billion versus revenues of
$6.3 billion in the prior year’s second quarter. Revenues increased
3.9 percent primarily as a result of an increase in pharmacy same
store sales.
Same store sales for the quarter increased 4.1 percent over the
prior year, consisting of a 1.1 percent increase
in front-end sales and a 5.6 percent increase in pharmacy sales.
Pharmacy sales included an approximate
199 basis point negative impact from new generic introductions.
The number of prescriptions filled in same stores increased 3.7
percent over the prior year period. Prescription sales accounted
for 68.8 percent of total drugstore sales, and third party
prescription revenue was 97.5 percent of pharmacy sales.
Net income was $127.8 million or $0.13 per diluted share
compared to last year’s second quarter net income of $32.8 million
or $0.03 per diluted share. The improvement in net income resulted
primarily from an increase in Adjusted EBITDA, a lower LIFO charge
due to pharmacy inventory reductions and a $62.2 million loss on
debt retirement in the prior year, partially offset by higher
income tax expense.
Adjusted EBITDA (which is reconciled to net income on the
attached table) was $364.2 million or
5.6 percent of revenues for the second quarter compared to
$341.6 million or 5.4 percent of revenues for the like period last
year. Adjusted EBITDA improved due to an increase in front-end and
pharmacy gross profit, partially offset by an increase in selling,
general and administrative expenses related to our higher level of
sales. The improved pharmacy gross profit was driven by the
increase in pharmacy revenues and the impact on inventory valuation
related to the company’s transition to its new drug purchasing and
delivery arrangement with McKesson, partially offset by lower
reimbursement rates. The net effect on inventory valuation
resulting from the transition to the outsourced McKesson
arrangement is not expected to be material to Fiscal 2015 results,
but did increase gross profit, Adjusted EBITDA and pre-tax income
by approximately $40 million in the second quarter.
In the second quarter, the company relocated 5 stores, remodeled
117 stores and expanded 1 store, bringing the total number of
wellness stores chainwide to 1,433. The company also opened 1 store
and closed 10 stores, resulting in a total store count of 4,572 at
the end of the second quarter.
Rite Aid Lowers Fiscal 2015 Guidance
Based upon current estimates for reimbursement rates and
anticipated lower profitability from new generics and generic drugs
that recently lost exclusivity, the company is expecting decreases
in pharmacy margin in the second half of Fiscal 2015 as compared to
its prior estimates and therefore is lowering its guidance for
Adjusted EBITDA, net income and net income per diluted share.
Adjusted EBITDA (which is reconciled to net income on the attached
table) is expected to be between $1.200 billion and $1.275 billion.
Net income is expected to be between $223.0 million and $333.0
million and income per diluted share between $0.22 and $0.33. The
company is also narrowing guidance for sales and same store sales.
Sales are expected to be between
$26.0 billion and $26.3 billion and same store sales to range
from an increase of 3.00 percent to an increase of 4.00 percent
over Fiscal 2014. Capital expenditures are expected to be
approximately $525 million.
Conference Call Broadcast
Rite Aid will hold an analyst call at 8:30 a.m. Eastern Time
today with remarks by Rite Aid's management team. The call will be
simulcast via the internet and can be accessed through the websites
www.riteaid.com in the conference call section of investor
information and www.StreetEvents.com. Slides related to materials
discussed on the call will be available on both sites. A playback
of the call will be available on both sites starting at
12 p.m. Eastern Time today. A playback of the call will also be
available by telephone beginning at 12 p.m. Eastern Time today
until 11:59 p.m. Eastern Time on Sept. 20, 2014. 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
eight-digit reservation number 96416227.
Rite Aid is one of the nation’s leading drugstore chains with
4,572 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.
Statements, including guidance, 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. 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 and
changes in legislation or regulations, including healthcare reform.
These and other risks, assumptions and uncertainties are 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.
See the attached table for a reconciliation of a non-GAAP
financial measure, Adjusted EBITDA to net income, the most
comparable GAAP financial measure. We define Adjusted EBITDA as net
income excluding the impact of income taxes (and any corresponding
adjustments to tax indemnification asset), 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, sale of assets and investments
and revenue deferrals related to our customer loyalty program).
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (unaudited)
August 30, 2014 March 1, 2014 ASSETS Current assets: Cash
and cash equivalents $ 185,758 $ 146,406 Accounts receivable, net
954,785 949,062 Inventories, net of LIFO reserve of $1,021,670 and
$1,018,581 2,922,203 2,993,948 Prepaid expenses and other current
assets 131,281 195,709 Total current
assets 4,194,027 4,285,125 Property, plant and equipment, net
2,006,872 1,957,329 Goodwill 73,103 - Other intangibles, net
411,295 431,227 Other assets 274,047 271,190
Total assets $ 6,959,344 $ 6,944,871
LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current
maturities of long-term debt and lease financing obligations $
113,070 $ 49,174 Accounts payable 1,205,834 1,292,419 Accrued
salaries, wages and other current liabilities 1,092,072
1,165,859 Total current liabilities 2,410,976
2,507,452 Long-term debt, less current maturities 5,570,583
5,632,798 Lease financing obligations, less current maturities
68,633 75,171 Other noncurrent liabilities 815,677
843,152 Total liabilities 8,865,869 9,058,573
Commitments and contingencies - - Stockholders' deficit: Common
stock 981,339 971,331 Additional paid-in capital 4,494,704
4,468,149 Accumulated deficit (7,346,553 ) (7,515,848 ) Accumulated
other comprehensive loss (36,015 ) (37,334 ) Total
stockholders' deficit (1,906,525 ) (2,113,702 ) Total
liabilities and stockholders' deficit $ 6,959,344 $
6,944,871 RITE AID CORPORATION AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts) (unaudited)
Thirteen weeks ended Thirteen weeks ended August 30, 2014
August 31, 2013 Revenues $ 6,522,584 $ 6,278,165 Costs and
expenses: Cost of goods sold 4,628,005 4,461,804 Selling, general
and administrative expenses 1,640,524 1,602,931 Lease termination
and impairment charges 7,111 11,390 Interest expense 100,950
106,716 Loss on debt retirements, net - 62,172 Gain on sale of
assets, net (1,715 ) (1,885 ) 6,374,875
6,243,128 Income before income taxes
147,709 35,037 Income tax expense 19,860 2,210
Net income $ 127,849 $ 32,827 Basic and
diluted earnings per share: Numerator for earnings per
share: Net income $ 127,849 $ 32,827 Accretion of redeemable
preferred stock - (26 ) Cumulative preferred stock dividends
- (2,772 ) Income attributable to common stockholders
- basic 127,849 30,029 Add back - Interest on convertible notes
1,364 - Income attributable to common
stockholders - diluted $ 129,213 $ 30,029
Denominator: Basic weighted average shares 970,664
901,992 Outstanding options and restricted shares, net 26,132
44,726 Convertible notes 24,796 -
Diluted weighted average shares 1,021,592
946,718 Basic and diluted income per share $
0.13 $ 0.03 RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in
thousands, except per share amounts) (unaudited)
Twenty-six weeks ended Twenty-six weeks ended August 30, 2014
August 31, 2013 Revenues $ 12,988,115 $ 12,571,222 Costs and
expenses: Cost of goods sold 9,290,557 8,933,870 Selling, general
and administrative expenses 3,284,878 3,212,192 Lease termination
and impairment charges 11,959 22,362 Interest expense 201,770
219,780 Loss on debt retirements, net - 62,172 Gain on sale of
assets, net (2,085 ) (7,065 )
12,787,079 12,443,311 Income before
income taxes 201,036 127,911 Income tax expense 31,741
5,422 Net income $ 169,295 $ 122,489
Basic and diluted earnings per share:
Numerator for earnings per share: Net income $ 169,295 $ 122,489
Accretion of redeemable preferred stock - (51 ) Cumulative
preferred stock dividends - (5,504 ) Income
attributable to common stockholders - basic 169,295 116,934 Add
back - Interest on convertible notes 2,728
2,728 Income attributable to common stockholders - diluted $
172,023 $ 119,662 Denominator:
Basic weighted average shares 966,997 897,993 Outstanding options
and restricted shares, net 26,141 40,143 Convertible notes
24,796 24,800 Diluted weighted average
shares 1,017,934 962,936 Basic
income per share $ 0.18 $ 0.13 Diluted income per share $ 0.17 $
0.12 RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In
thousands) (unaudited) Thirteen weeks ended Thirteen
weeks ended August 30, 2014 August 31, 2013 Net income $ 127,849 $
32,827 Other comprehensive income: Defined benefit pension plans:
Amortization of prior service cost, net transition obligation and
net actuarial losses included in net periodic pension cost
660 1,262 Total other comprehensive income 660
1,262 Comprehensive income $ 128,509 $ 34,089 RITE
AID CORPORATION AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (unaudited)
Twenty-six weeks ended Twenty-six weeks ended August
30, 2014 August 31, 2013 Net income $ 169,295 $ 122,489 Other
comprehensive income: Defined benefit pension plans: Amortization
of prior service cost, net transition obligation and net actuarial
losses included in net periodic pension cost 1,319
2,525 Total other comprehensive income 1,319 2,525
Comprehensive income $ 170,614 $ 125,014 RITE AID
CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OPERATING
AND CASH FLOW INFORMATION (Dollars in thousands, except per share
amounts) (unaudited) Thirteen weeks ended Thirteen
weeks ended August 30, 2014 August 31, 2013
SUPPLEMENTAL
OPERATING INFORMATION Revenues $ 6,522,584 $ 6,278,165
Cost of goods sold 4,628,005 4,461,804 Gross profit
1,894,579 1,816,361 LIFO charge 1,544 23,000 FIFO
gross profit 1,896,123 1,839,361 Gross profit as a
percentage of revenues 29.05% 28.93% LIFO charge as a percentage of
revenues 0.02% 0.37% FIFO gross profit as a percentage of revenues
29.07% 29.30% Selling, general and administrative expenses
1,640,524 1,602,931 Selling, general and administrative expenses as
a percentage of revenues 25.15% 25.53% Cash interest expense
96,558 102,556 Non-cash interest expense 4,392 4,160
Total interest expense 100,950 106,716 Adjusted
EBITDA 364,166 341,589 Adjusted EBITDA as a percentage of revenues
5.58% 5.44% Net income 127,849 32,827 Net income as a
percentage of revenues 1.96% 0.52% Total debt 5,752,286
6,051,559 Invested cash 50,577 1,629 Total debt net
of invested cash 5,701,709 6,049,930
SUPPLEMENTAL
CASH FLOW INFORMATION Payments for property, plant and
equipment 99,291 89,944 Intangible assets acquired 20,437
23,865 Total cash capital expenditures 119,728 113,809
Equipment received for noncash consideration 1,337 - Equipment
financed under capital leases 2,242 7,744 Gross
capital expenditures $ 123,307 $ 121,553 RITE AID
CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OPERATING
AND CASH FLOW INFORMATION (Dollars in thousands, except per share
amounts) (unaudited) Twenty-six weeks ended
Twenty-six weeks ended August 30, 2014 August 31, 2013
SUPPLEMENTAL OPERATING INFORMATION Revenues $
12,988,115 $ 12,571,222 Cost of goods sold 9,290,557
8,933,870 Gross profit 3,697,558 3,637,352 LIFO charge 3,089
35,000 FIFO gross profit 3,700,647 3,672,352 Gross
profit as a percentage of revenues 28.47% 28.93% LIFO charge as a
percentage of revenues 0.02% 0.28% FIFO gross profit as a
percentage of revenues 28.49% 29.21% Selling, general and
administrative expenses 3,284,878 3,212,192 Selling, general and
administrative expenses as a percentage of revenues 25.29% 25.55%
Cash interest expense 192,993 211,104 Non-cash interest
expense 8,777 8,676 Total interest expense 201,770
219,780 Adjusted EBITDA 646,779 686,367 Adjusted
EBITDA as a percentage of revenues 4.98% 5.46% Net income
169,295 122,489 Net income as a percentage of revenues 1.30% 0.97%
Total debt 5,752,286 6,051,559 Invested cash 50,577
1,629 Total debt net of invested cash 5,701,709 6,049,930
SUPPLEMENTAL CASH FLOW INFORMATION
Payments for property, plant and equipment 193,633 170,850
Intangible assets acquired 40,023 35,651 Total cash
capital expenditures 233,656 206,501 Equipment received for noncash
consideration 1,337 - Equipment financed under capital leases
3,925 13,117 Gross capital expenditures $ 238,918 $
219,618 RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION RECONCILIATION OF NET INCOME TO ADJUSTED
EBITDA (In thousands) Thirteen weeks ended
Thirteen weeks ended August 30, 2014 August 31, 2013
Reconciliation of net income to adjusted EBITDA: Net income $
127,849 $ 32,827 Adjustments: Interest expense 100,950 106,716
Income tax expense 19,860 2,210 Depreciation and amortization
101,484 99,247 LIFO charge 1,544 23,000 Lease termination and
impairment charges 7,111 11,390 Other 5,368 66,199
Adjusted EBITDA $ 364,166 $ 341,589 Percent of revenues 5.58% 5.44%
RITE AID CORPORATION AND SUBSIDIARIES SUPPLEMENTAL
INFORMATION RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA (In
thousands)
Twenty-six weeks ended
Twenty-six weeks ended
August 30, 2014
August 31, 2013
Reconciliation of net income to adjusted EBITDA: Net
income $ 169,295 $ 122,489 Adjustments: Interest expense 201,770
219,780 Income tax expense 31,741 5,422 Depreciation and
amortization 204,589 200,493 LIFO charge 3,089 35,000 Lease
termination and impairment charges 11,959 22,362 Other
24,336 80,821 Adjusted EBITDA $ 646,779
$ 686,367 Percent of revenues 4.98 % 5.46 %
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
(unaudited) Thirteen weeks ended Thirteen
weeks ended August 30, 2014 August 31, 2013 OPERATING
ACTIVITIES: Net income $ 127,849 $ 32,827 Adjustments to reconcile
to net cash provided by operating activities: Depreciation and
amortization 101,484 99,247 Lease termination and impairment
charges 7,111 11,390 LIFO charge 1,544 23,000 Gain on sale of
assets, net (1,715 ) (1,885 ) Stock-based compensation expense
5,736 3,837 Loss on debt retirements, net - 62,172 Excess tax
benefit on stock options (16,536 ) - Changes in operating assets
and liabilities: Accounts receivable (40,906 ) (41,054 )
Inventories 9,542 (102,861 ) Accounts payable (113,074 ) 51,747
Other assets and liabilities, net 41,448
(58,955 ) Net cash provided by operating activities 122,483 79,465
INVESTING ACTIVITIES: Payments for property, plant and equipment
(99,291 ) (89,944 ) Intangible assets acquired (20,437 ) (23,865 )
Acquisition of Health Dialog and RediClinic, net of cash acquired
(4,487 ) - Proceeds from dispositions of assets and investments
4,229 3,088 Net cash used in investing
activities (119,986 ) (110,721 ) FINANCING ACTIVITIES: Proceeds
from issuance of long-term debt - 1,310,000 Net proceeds from
revolver 54,000 135,000 Principal payments on long-term debt (8,180
) (1,317,593 ) Change in zero balance cash accounts (48,967 )
(4,452 ) Net proceeds from the issuance of common stock 3,887 5,519
Financing fees paid for early debt redemption - (45,636 ) Excess
tax benefit on stock options 16,536 - Deferred financing costs paid
(18 ) (16,317 ) Net cash provided by financing
activities 17,258 66,521 Increase in
cash and cash equivalents 19,755 35,265 Cash and cash equivalents,
beginning of period 166,003 108,902
Cash and cash equivalents, end of period $ 185,758 $ 144,167
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in
thousands) (unaudited)
Twenty-six weeks ended
Twenty-six weeks ended
August 30, 2014
August 31, 2013
OPERATING ACTIVITIES: Net income $ 169,295 $ 122,489
Adjustments to reconcile to net cash provided by operating
activities: Depreciation and amortization 204,589 200,493 Lease
termination and impairment charges 11,959 22,362 LIFO charge 3,089
35,000 Gain on sale of assets, net (2,085 ) (7,065 ) Stock-based
compensation expense 9,892 8,077 Loss on debt retirements, net -
62,172 Excess tax benefit on stock options (27,058 ) - Changes in
operating assets and liabilities: Accounts receivable 441 6,743
Inventories 68,917 (95,926 ) Accounts payable (26,750 ) 36,200
Other assets and liabilities, net (50,058 ) (126,633
) Net cash provided by operating activities 362,231 263,912
INVESTING ACTIVITIES: Payments for property, plant and equipment
(193,633 ) (170,850 ) Intangible assets acquired (40,023 ) (35,651
) Acquisition of Health Dialog and RediClinic, net of cash acquired
(69,793 ) - Proceeds from sale-leaseback transactions - 3,989
Proceeds from dispositions of assets and investments 6,102
9,698 Net cash used in investing activities
(297,347 ) (192,814 ) FINANCING ACTIVITIES: Proceeds from issuance
of long-term debt 1,152,293 1,310,000 Net proceeds from revolver
5,000 12,000 Principal payments on long-term debt (1,165,623 )
(1,321,971 ) Change in zero balance cash accounts (57,545 ) (5,319
) Net proceeds from the issuance of common stock 14,791 12,263
Financing fees paid for early debt redemption - (45,636 ) Excess
tax benefit on stock options 27,058 - Deferred financing costs paid
(1,506 ) (17,720 ) Net cash used in financing
activities (25,532 ) (56,383 ) Increase in cash and
cash equivalents 39,352 14,715 Cash and cash equivalents, beginning
of period 146,406 129,452 Cash and cash
equivalents, end of period $ 185,758 $ 144,167
RITE AID CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION RECONCILIATION OF NET INCOME GUIDANCE TO
ADJUSTED EBITDA GUIDANCE YEAR ENDING FEBRUARY 28, 2015 (In
thousands, except per share amounts)
Guidance
Range Low High Sales $ 26,000,000 $
26,300,000 Same store sales 3.00 % 4.00 % Gross
capital expenditures $ 525,000 $ 525,000 Reconciliation of
net income to adjusted EBITDA: Net income $ 223,000 $ 333,000
Adjustments: Interest expense 393,000 393,000 Income tax expense
55,000 45,000 Depreciation and amortization 418,000 416,000 LIFO
charge 15,000 - Store closing and impairment charges 50,000 46,000
Loss on debt retirement 18,000 18,000 Other 28,000
24,000 Adjusted EBITDA $ 1,200,000 $ 1,275,000
Diluted income per share $ 0.22 $ 0.33
Rite Aid CorporationInvestors:Matt Schroeder,
717-214-8867investor@riteaid.comorMedia:Susan Henderson,
717-730-7766
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