Rite Aid Corporation (RAD, Financial) is one of the leading retail drugstore chains in the United States. It sells prescription drugs and a range of other merchandise, which it calls front-end products. Front-end products include over-the-counter medications, health and beauty aids, personal care items, cosmetics, household items, beverages, convenience foods, greeting cards, seasonal merchandise and other every day and convenience products.
RAD has a strong presence on both the East and West Coasts. Rite Aid is the largest drugstore chain on the East Coast and the third-largest in the United States.
Rite Aid is one of the nation's leading drugstore chains with nearly 4,566 stores in 31 states and the District of Columbia and fiscal 2015 annual revenues of $26.5 billion.
Impressive first-quarter results
Net income
Net income during the quarter was $18.8 million or $0.02 per diluted share (which was $41.4 million or $0.04 per diluted share during the prior year first quarter).
Reasons for this decline- Pre-tax costs of $36.0 million due to acquisition of EnvisionRx.
Adjusted EBITDA
Increase in Adjusted EBITDA partially compensated the decline in net income during this quarter.
Adjusted EBITDA during the quarter was $299.3 million or 4.5 % of revenues (which was $282.6 million or 4.4 % of revenues in the prior year period).
Revenues
Revenues during the quarter were $6.6 billion (which was an increase of 2.8 % from prior year period’s $6.5 billion). This increase was mainly due to increase in same store sales.
Sales
Same-store sales during the quarter increased by 2.9% over the prior year period.
Pharmacy sales increased by 3.9%.
Prescription sales accounted for 69.1% of total drugstore sales, and third-party prescription revenue was 97.7 % of pharmacy sales.
Number of Stores Update
During the quarter the company relocated two stores, remodeled 108 stores and expanded one store, bringing the total number of wellness stores chain wide to 1,741. The company also closed four stores, resulting in a total store count of 4,566 at the end of the first quarter.
Expectations for 2016
The company expects the following for 2016:
- Revenues are expected to be in the range of $30.7 billion-$31.2 billion (including PBM revenues)
- Capex are expected to be around $665 million.
- Adjusted EBITDA is expected to be between $1.350 billion-$1.450 billion.
- Net income is expected to be between $150.0 million-$230.0 million or income per diluted share of $0.14 to $0.22.
- Drugstore sales are expected to range between $26.9 billion and $27.4 billion.
- Same store sales to range from an increase of 2.50% to an increase of 4.50% over fiscal 2015.
Acquisition of EnvisionRx
This association will help RAD to:
- Continue focus on health and wellness initiatives
- Leverage its existing store base to deliver growth.
- Address needs of growing markets.
- Enhance value for customers.
- Achieve cost synergies of upto $25-$30 million.
Their combined business will have over ~$30 billion in annual revenue.
My takeaway
RAD is a growing retail healthcare company. It provides compelling health-focused consumer solution through unique products, services and engagement. RAD opened 24 clinics in Rite Aid stores in Philadelphia and Washington in fiscal 2015. It plans to open 50 more clinics by 2016.
The turnaround initiatives taken by the company has just kicked off. The company increased Adjusted EBITDA by over $450 million from lowest point in turnaround.
The company reduced Adjusted EBITDA SG&A by more than $300 million since beginning of turnaround.
2015 has been a year of growth and transformation in which RAD continued to generate strong financial results while making important strategic investments to further its position. It has delivered growth in same-store sales and prescription count, strategically increased capex and effectively managed expenses to record third consecutive year of increased profitability.
Rite Aid is well positioned to provide an even higher level of care to help meet this growing demand, drive positive health outcomes and find ways to help lower health care costs.
RAD is doing all it takes to foster its growth. It has upgraded its stores and is concentrating on expanding its product lines. The company has the potential to excel in the times to come. Pharmacy stocks have always been an investors’ favorite. It has strong fundamentals and the projected numbers are good. It is focused on leveraging cost structure and investing in new stores. Backed by customer loyalty programs, remodeling efforts and initiatives to cut costs, RAD is still on the right track.
(Source: Company's Website)
