Rite Aid Corporation RAD posted better-than-anticipated fourth-quarter fiscal 2015 results, wherein adjusted earnings of 12 cents a share surpassed the Zacks Consensus Estimate of 7 cents and rose a couple of cents from the year-ago quarter.
The company’s robust performance in the fourth quarter is attributable to strong comparable-store sales (comps) growth, driven by a rise in prescription count and efficient expense management. Further, the company gained from its stringent focus on strengthening its portfolio of health and wellness services.
Including one-time items, quarterly earnings came in at $1.79 per share, substantially up from 6 cents recorded in the prior-year period.
Rite Aid's revenues rose 3.8% year over year to $6,847.9 million and surpassed the Zacks Consensus Estimate of $6,754 million. Top-line growth was mainly driven by a 4.5% increase in comps.
During the quarter, pharmacy comps increased 5.7% despite a negative impact of 128 basis points (bps) due to the introduction of new generic drugs. Additionally, prescriptions filled at comparable stores increased 3.5%, while front-end comps rose 2%. Prescription sales constituted about 68.1% of total drugstore sales, while third-party prescription revenues accounted for 97.5% of pharmacy sales.
Rite Aid’s adjusted EBITDA decreased 3.7% year over year to $343.3 million. Moreover, as a percentage of sales, it contracted about 40 bps to 5%.
Balance Sheet & Cash Flow
At the end of the reported quarter, Rite Aid, which competes with China Nepstar Chain Drugstore Ltd. NPD, had cash and cash equivalents of $115.9 million and long-term debt (excluding current maturities) of $5,483.4 million.
During the quarter, the company generated cash flow of $175 million from operating activities and incurred cash capital expenditure of nearly $134.8 million.
For fiscal 2016, the company expects capital expenditure of $650 million, out of which $105 million will be deployed toward new and relocated stores, $225 million toward wellness remodels and approximately $100 million for script file buys. Additionally, the company expects to generate free cash flow of about $300–$400 million in fiscal 2016.
Store Update
Rite Aid stores continue to undergo renovation, with 115 outlets being remodeled in the quarter. Additionally, the company relocated three stores, expanded two stores, opened one store, acquired two stores and shuttered five outlets during the quarter. As of the end of the quarter, the company completed wellness remodels at 1,634 stores. As of Apr 8, 2015, Rite Aid operated 4,570 stores across 31 states and the District of Columbia.
In fiscal 2016, the company intends to open 11 new outlets, relocate 33 stores and remodel 400 wellness stores.
Outlook
The company, which trails only Walgreens Boots Alliance, Inc. WBA and CVS Caremark Corp. CVS in size, now anticipates sales for fiscal 2016 to be in the range of $26.9–$27.4 billion. It also projects comps growth of 2.5%–4.5%.
Further, this Zacks Rank #3 (Hold) company expects adjusted EBITDA for fiscal 2016 to range from $1.250–$1.350 billion. Also, management now envisions fiscal 2016 earnings in the range of 19–27 cents a share.
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