Rite Aid, a US drugstore chain, reported mixed fourth-quarter results due to increased losses on various fees, but overall revenue exceeded expectations, driven by strong growth in prescription revenue.
Rite Aid said it expected to save $170 million in the current fiscal year by closing 145 unprofitable stores, 63 of which were announced last quarter, to reduce business management costs and improve the efficiency of store labour costs.
The company has also reduced costs related to its pharmacy service provider Elixir.
For the fourth quarter ended Feb. 26, Rite Aid reported a net loss of $389.1 million, or $7.18 a share, compared with a loss of $18.5 million, or 34 cents a share, last year.
The adjusted loss was $1.63 per share, and analysts had expected a loss of $0.43 per share.
Rite Aid attributed the increase in net loss to $229 million in goodwill impairment charges in its pharmacy services division.
Other factors include impairment charges for store closures, leaseback of stores and distribution centers, and gains from the acquisition of Bartell Drugs the previous year.
Revenue rose to $6.065 billion from $5.917 billion, above analysts’ expectations of $5.47 billion. Revenue from the retail pharmacy sector grew by 7.8% in the quarter and 12% for the whole year.
Same-store sales increased by 8.3% in the quarter, with pharmacy sales up 10.7% and front-store sales up 2.7%. The sales of prescription drugs in continuous operation account for 70.1% of the total sales of drugstores.
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“in the ongoing challenge of the COVID-19 epidemic, we have exceeded our plans for 2022,” said Heyward Donigan, president and CEO of Rite Aid.
As we look forward to the coming year, we are ready and energetic to compete in the new normal after the COVID-19 epidemic.
We demonstrate the important role that pharmacists play in our customers’ daily health, and through our continued leadership as a full-service pharmacy company, we are well positioned to grow in the trillion-dollar pharmacy market.
For fiscal year 2023, Rite Aid expects revenue of between $23.1 billion and $23.5 billion, with an adjusted net loss of between $.53 and $1.06 per share.
Analysts expect revenue of $21.409 billion and a loss of $1.22 per share.
Currently, Rite Aid operates more than 2400 stores in 17 states in the United States.
On the other hand, analysts point out that Rite Aid’s latest performance guidance shows that its viability is being challenged.
Rite Aid’s losses have widened, and its future performance is likely to be affected by a decline in expenses related to the COVID-19 epidemic.
Analysts at Deutsche Bank, led by George George Hill, said in a recent research note that Rite Aid needed to generate annual adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of about $400m-$450 million to survive as an operating company.
If it falls below this threshold, it means that the company’s shares are “worthless” and may not be able to continue to operate.
Hill’s figure is based on the annual cash needed by Rite Aid to repay its debt (up to $200m) and the capital needed to maintain its stores (another $200m to $250 million).
As a result, Deutsche Bank analysts downgraded Rite Aid shares, saying “We see possible risks for the company to provide guidance, leading investors to question the company’s ability to maintain its own sustainability”.
Rite Aid has long performed poorly, keeping pace with its bigger competitors in the field, CVS and Walgreens.
But Rite Aid lacks the chain size and deep national footprint of its competitors.
Deutsche Bank analysts estimate that effective vaccines and tests contribute more than $200m to Rite Aid’s revenue.
According to Hill’s team, “the contribution of COVID-19 ‘s epidemic-related income to profits is likely to decline sharply” will make it more difficult for Rite Aid to meet its cash needs.
Rite Aid benefited from additional passenger traffic during the COVID-19 epidemic. Its losses narrowed in the fiscal year to 2020 and then rose again last year.
In the first nine months of 2021, the company’s losses exceeded those of 2020.
But recently, according to Placer.ai, an analysis firm, Rite Aid store traffic has been below the average since COVID-19 ‘s outbreak, while Walgreens and CVS have surpassed 2019 almost every week since October.
Since mid-January, weekly traffic at the Rite Aid store has fallen by double digits compared with 2019.