Rite Aid Corporation Reports Fiscal 2021 Third Quarter Results

• Revenues Increased 12.0 Percent – Driven by Growth in Both Retail Pharmacy and Pharmacy Services Segments
• Increased Market Share in both Front-End and Pharmacy
• Third Quarter Net Income from Continuing Operations of $4.3 Million or $0.08 Per Share, Compared to the Prior Year Third Quarter Net Income of $52.3 Million or $0.98 Per Share
• Third Quarter Adjusted Net Income from Continuing Operations of $21.6 Million or $0.40 Per Share, Compared to the Prior Year Third Quarter Adjusted Net Income of $29.1 Million or $0.54 Per Share
• Third Quarter Adjusted EBITDA from Continuing Operations of $137.4 Million, Compared to the Prior Year Adjusted EBITDA of $158.1 Million
• Company Narrows Fiscal 2021 Guidance

CAMP HILL, Pa.--(BUSINESS WIRE)-- Rite Aid Corporation (NYSE: RAD) today reported operating results for its third fiscal quarter ended November 28, 2020.

For the third quarter, the company reported net income from continuing operations of $4.3 million, or $0.08 income per share, Adjusted net income from continuing operations of $21.6 million, or $0.40 income per share, and Adjusted EBITDA from continuing operations of $137.4 million, or 2.3 percent of revenues.

“We are pleased with our third quarter performance as we continue to grow our business and achieve major physical and digital milestones through our RxEvolution strategy,” said Heyward Donigan, president and chief executive officer, Rite Aid. “We officially launched our new brand and logo, made substantial progress in evolving our merchandise mix to an assortment that best supports whole health, refreshed over 700 store exteriors, opened the first three new Store of the Future prototypes and began the integration of our two legacy PBMs. On the digital side, we launched a completely modernized Rite Aid online experience and mobile app and are set to launch our new member portal at Elixir.”

“Our teams are working hard to serve our customers during these challenging times. We have administered over one million COVID-19 tests and will be partnering with the CDC to help administer COVID-19 vaccines in our communities. I am so proud of our 50,000 associates and the strategic progress we’re making in our journey to revolutionize our industry and elevate our role as an indispensable healthcare provider. We are accelerating the key initiatives that support our strategy, and we will continue to deliver the operational excellence needed to achieve strong results as we generate cash flow, reduce debt and improve our leverage ratio.”

Consolidated Third Quarter Summary

Revenues from continuing operations for the quarter were $6.12 billion compared to revenues from continuing operations of $5.46 billion in the prior year’s quarter. The increase in revenues was driven by growth at both the Retail Pharmacy and Pharmacy Services segments.

Net income from continuing operations was $4.3 million, or $0.08 per share, compared to last year’s third quarter net income from continuing operations of $52.3 million, or $0.98 per share. The decline in net income was due primarily to a $55.7 million gain on debt retirements in the prior year and a decrease in Adjusted EBITDA, partially offset by lower restructuring-related costs and a higher gain on sale of assets resulting from the sale-leaseback of the company’s Perryman, MD distribution center.

Adjusted EBITDA from continuing operations was $137.4 million, or 2.3 percent of revenues, compared to last year’s third quarter Adjusted EBITDA of $158.1 million, or 2.9 percent of revenues.

Retail Pharmacy Segment

Retail Pharmacy Segment revenues from continuing operations increased 5.1 percent over the prior year quarter. Same store sales from continuing operations for the third quarter increased 4.3 percent over the prior year period, consisting of a 6.1 percent increase in pharmacy sales and a 0.7 percent decrease in front-end sales. Front-end same store sales, excluding cigarettes and tobacco products, increased 0.3 percent. Front-end sales benefited from increases in immunity, first aid and paper products, offset by decreases in over-the-counter products related to cough cold and flu and Halloween candy sales. The company increased its retail script share¹, and also increased its front-end market share in both dollars and in unit sales². The number of prescriptions filled in same stores, adjusted to 30-day equivalents, increased 3.1 percent over the prior year period driven by increases in maintenance prescriptions, supported by personalized Medication Therapy Management interventions and home deliveries. Flu immunizations increased by 28 percent over the prior year period, which offset a 19 percent decline in acute scripts related to cough cold and flu. In total, acute prescriptions decreased by 1.9 percent.

Retail Pharmacy Segment Adjusted EBITDA from continuing operations was $88.6 million, or 2.2 percent of revenues, for the third quarter compared to last year’s third quarter Adjusted EBITDA from continuing operations of $108.6 million or 2.8 percent of revenues. Gross profit dollars increased due to increased revenues, but gross margin rate declined due to reimbursement rate pressure and the impact of the reduction in over-the-counter front-end sales. Selling, general and administrative (SG&A) expenses improved as a percentage of sales, but SG&A dollars increased due to incremental costs associated with the COVID-19 pandemic and the absence of Transition Services Agreement income in the current quarter, as services under that agreement have been completed.

Pharmacy Services Segment

Pharmacy Services Segment revenues were $2.1 billion, an increase of 29.2 percent compared to the prior year period. The increase in revenues was primarily the result of an increase of 252,000 Medicare Part D members.

Pharmacy Services Segment Adjusted EBITDA from continuing operations was $48.8 million, or 2.3 percent of revenues, for the third quarter and was flat to last year’s third quarter Adjusted EBITDA from continuing operations of $49.5 million, or 3.1 percent of revenues. The increase in revenues was offset by a decline in Adjusted EBITDA as a percent of revenues. The Pharmacy Services Segment benefited from reductions in payroll and indirect spend overall, but these benefits were offset by increased drug costs within Medicare Part D and SG&A spend related to an increase in Medicare Part D members. The Company expects Medicare Part D membership to decrease in fiscal 2022, but expects these members to be more profitable.

Outlook for Fiscal 2021

Rite Aid Corporation is narrowing its fiscal 2021 guidance. The company’s key guidance assumptions are as follows:

• Benefits from initiatives to drive retail sales growth, offset by the impact of a less severe cough, cold and flu season on front end over-the-counter sales and related prescriptions;
• A reduction in Medicare Part D membership beginning January 1;
• Strong expense control across both the Retail Pharmacy and Pharmacy Services segments, offset by additional retail operating expenses caused by the recent increase in COVID-19 cases across many of our markets; and
• Continued improvements in pharmacy network management at Elixir.

Rite Aid Corporation expects revenues to be between $23.9 billion and $24.2 billion in fiscal 2021 with same store sales expected to range from an increase of 3.5 percent to an increase of 4.5 percent over fiscal 2020.

Net loss is expected to be between $114 million and $89 million.

Adjusted EBITDA is expected to be between $490 million and $520 million.

Adjusted net income per share is expected to be between $0.45 and $0.85.

Capital expenditures are expected to be approximately $325 million, which includes our previously announced acquisition of Bartell Drugs.

Free cash flow is expected to be between $50 million and $100 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 broadcast via the Internet at https://www.riteaid.com/corporate/investor-relations/presentations. The telephone replay will be available beginning at 12 p.m. Eastern Time on Thursday, Dec. 17, 2020 and ending at 11:59 p.m. Eastern Time on Jan. 16, 2021. To access the replay of the call, telephone (800) 585-8367 or (416) 621-4642 and enter the seven-digit reservation number 3338667. The webcast replay of the call will also be available at https://www.riteaid.com/corporate/investor-relations/presentations starting at 12 p.m. Eastern Time today. The playback will be available until the company’s next conference call.

About Rite Aid Corporation

Rite Aid Corporation is on the front lines of delivering healthcare services and retail products to more than 1.6 million Americans daily. Our pharmacists are uniquely positioned to engage with customers and improve their health outcomes. We provide an array of whole being health products and services for the entire family through over 2,400 retail pharmacy locations across 18 states. Through Elixir, we provide pharmacy benefits and services to approximately 4 million members nationwide. For more information, www.riteaid.com.

Cautionary Statement Regarding Forward-Looking Statements

Statements 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. Such statements include, but are not limited to, statements regarding Rite Aid’s outlook and guidance for fiscal 2021, the ability to generate positive free cash flows in fiscal 2021; the continued impact of the global coronavirus (COVID-19) pandemic on Rite Aid’s business; the ability to accelerate key initiatives and improve the operating performance of our stores; and any assumptions underlying any of the foregoing. 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: the impact of COVID-19 on our workforce, operations, stores, expenses, and supply chain, and the operations of our customers, suppliers and business partners; our ability to successfully implement our RxEvolution strategy; our high level of indebtedness and our ability to satisfy our obligations and the other covenants contained in our debt agreements; general competitive, economic, industry, market, political (including healthcare reform) and regulatory conditions, civil unrest (including any resulting store closures, damage, or loss of inventory), as well as other factors specific to the markets in which we operate; 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; our ability to achieve the benefits of our efforts to reduce the costs of our generic and other drugs; our ability to achieve cost savings and other benefits of our organizational restructuring within our anticipated timeframe, if at all; outcomes of legal and regulatory matters; and our ability to partner and have relationships with health plans and health systems.

These and other risks, assumptions and uncertainties are more fully described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K, in Item 1A (Risk Factors) of our Quarterly Report on Form 10-Q filed on July 2, 2020 and in other documents that we file or furnish with the Securities and Exchange Commission (the “SEC”), which you are encouraged to read. To the extent that COVID-19 adversely affects our business and financial results, it may also have the effect of heightening many of such risk factors.

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.

The degree to which COVID-19 may adversely affect Rite Aid’s results and operations, including its ability to achieve its outlook for fiscal 2021 guidance, will depend on numerous evolving factors and future developments, which are highly uncertain, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact (such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns), including the reinstitution of more stringent regulations (including mandatory stay at home orders, the availability and rollout of vaccines to treat the virus), and how quickly and to what extent normal economic and operating conditions can resume. As a result, the impact on Rite Aid’s financial and operating results cannot be reasonably estimated with specificity at this time, but the impact could be material. 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.

Reconciliation of Non-GAAP Financial Measures

Rite Aid separately reports financial results on the basis of Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Adjusted EBITDA which are non-GAAP financial measures. See the attached tables for a reconciliation of Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Adjusted EBITDA to net income (loss), and net income (loss) per diluted share, which are the most directly comparable GAAP financial measures. Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share exclude amortization expense, merger and acquisition-related costs, non-recurring litigation settlement, gains or losses on debt modifications and retirements, LIFO adjustments, goodwill and intangible asset impairment charges, restructuring-related costs and the WBA merger termination fee.

Adjusted EBITDA is defined as net income (loss) excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, goodwill and intangible asset impairment charges, inventory write-downs related to store closings, gains or losses on debt modifications and retirements, the WBA merger termination fee, and other items (including stock-based compensation expense, merger and acquisition-related costs, non-recurring litigation settlement, severance, restructuring-related costs and costs related to facility closures and gain or loss on sale of assets). The add back of LIFO (credit) charge when calculating Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share removes the entire impact of LIFO (credits) charges, and effectively reflects Rite Aid’s results as if the company was on a FIFO inventory basis.

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