Why Rite Aid Earnings Disappointed Investors

The company attributed the lower net income and EPS to interest and other incremental pretax costs of $36 million, or $0.02 per share after tax, that are the result of Rite Aid’s pending acquisition of EnvisionRx.

Net income for the quarter totaled $18.8 million and adjusted EBITDA came in at $299.3 million, 4.5% of revenues. As a percentage of revenue, adjusted EBITDA rose sequentially from 4.4%.

Rite Aid attributed its revenue increase to higher same-store sales, which rose 2.9% in the quarter. Front-end sales rose 0.6% and pharmacy sales were up 3.9%, including a negative impact of 165 basis points due to new generic drug introductions. The number of prescriptions filled at same stores rose 1.6%, and prescription sales accounted for 69.1% of total sales. Third-party prescription revenue totaled 97.7% of pharmacy sales.

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The company updated its guidance to account for the closing of the deal for EnvisionRx, which is expected by the beginning of July. Full fiscal 2016 revenue is now forecast in a range of $30.7 billion to $31.2 billion, with drugstore sales in a range of $26.9 billion to $27.4 billion. Same-store sales are expected to rise in range of 2.5% to 4.5% and EPS is forecast in a range of $0.14 to $0.22. Current consensus estimates call for full-year revenues of $27.26 and EPS of $0.26.

The company’s CEO said:

Our first-quarter results reflect the continued progress we’re making in positioning Rite Aid for growth, including increases in same-store sales, same-store prescription count and Adjusted EBITDA. We generated these positive results while also making significant strategic investments to continue our transformation into a retail healthcare company.

First-quarter results were a bit worse than expected, and the full-year EPS forecast is a lot lower than expected. Combined, the two data points are likely to sink the stock Thursday.

Shares traded down about 4.8% in premarket trading Thursday, at $8.49 in a 52-week range of $4.42 to $9.07. Thomson Reuters had a consensus analyst price target of $10.00 before the results were announced.

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