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Rite Aid ‘Well’ positioned against specialty Rx, immunization opportunities

BY Michael Johnsen

Rite Aid Wednesday evening outlined the number of tools the company has on hand in the delivery of low-cost, high-cost health and wellness services as it enters a new era featuring a tighter network of stores and a broad selection of diverse health services.

It begins with the company’s Wellness store format, which will represent more than two-thirds of its new store base. “These stores continue to outperform the rest of the chain,” noted Kermit Crawford, Rite Aid president and COO, on his first quarterly earnings call since joining the team in October. “We will continue to enhance our product selection, traffic flow and services based upon learnings and a better understanding of our local customer needs. We’re excited to be in a position to further leverage this popular store format in delivering an even better customer experience.”

One of the in-store services Rite Aid expects to enhance is its immunization offerings and medication therapy management consultations. “While we have strong momentum with flu immunizations, we have a significant opportunity to further increase adult non-flu immunizations that protect against conditions like shingles, pneumonia and whooping cough,” Crawford said. “We’re also highly focused on working with patients to improve medication adherence. This is especially important as we participate in additional performance and Medicare Part D networks as increased medication adherence improves their CMS Star ratings.”

In addition to in-store services, Rite Aid plans to further extend its reach into specialty pharmacy, which is expected to account for more than 40% of the total U.S. drug spend by 2021, Crawford noted. “When you consider the specialty platform already in place through EnvisionRx, along with [the] health coaching, disease-state counseling and analytics capabilities of Health Dialog, we have assets in place to build a more integrated specialty offering to help patients manage these high-cost therapies,” he said.

Rite Aid earlier in the afternoon beat analyst earnings estimates by two cents per share as the Camp Hill, Pa.-based company posted adjusted net income from continuing operations of $1.6 million, or $0.00 per diluted share. The company's third quarter net income of $81 million or $0.08 per diluted share, was up significantly compared to the prior year third quarter net income of $15 million or $0.01 per diluted share thanks to the ongoing sale of 1,932 stores to Walgreens Boots Alliance.

Analysts had projected a loss of two cents per share. Rite Aid's stock sold at $2.11 at close of business Wednesday, representing a slight decline of 0.9%.

[quote-from-article] "Our pro-forma Adjusted EBITDA from continuing operations for the third quarter of $153 million, which includes $24 million in fees that would have been received if all of the divested stores were being managed under the TSA Agreement as of the beginning of the period, was in line with our expectations," stated John Standley, Rite Aid chairman and CEO. "The third quarter was a busy time for our team in preparing for and beginning the transfer of stores and related assets to Walgreens Boots Alliance. … To date, we have transferred 357 stores and have received approximately $715 million in proceeds, which we have used to pay down debt. Looking forward, in addition to completing the transfer process, we will continue to focus on our most significant business-building opportunities as we work together to deliver a great experience to our customers and patients."

For the third quarter ended Dec. 2, 2017, the company reported revenues from continuing operations for the quarter were $5.4 billion, representing a decrease of 5.6%.

Retail Pharmacy Segment revenues were $4 billion and decreased 3% compared to the prior year period primarily as a result of a decrease in same-store sales and reimbursement rates. Revenues in the company's Pharmacy Services Segment were $1.4 billion and decreased 12.2% compared to the prior year period, due to an election to participate in fewer Medicare Part D regions and a decline in commercial business.

Same-store sales from continuing operations for the quarter decreased 2.5% from the prior year, consisting of a 3.5% decrease in pharmacy sales and a 0.5% decrease in front-end sales.

Pharmacy sales included an approximate 198 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores, adjusted to 30-day equivalents, decreased 2.4% from the prior year period due in part to exclusion from certain pharmacy networks that Rite Aid participated in the prior year. Prescription sales from continuing operations accounted for 66.5% of total drug store sales.

In the third quarter, the company opened one store, relocated nine stores, remodeled 20 stores and expanded one store, bringing the total number of wellness stores chainwide to 2,505. The company sold 97 stores to WBA and closed 7 stores, resulting in a total store count of 4,404 at the end of the third quarter.

As part of its agreement with Walgreens Boots Alliance, WBA will purchase a total of 1,932 stores, three distribution centers and related inventory from Rite Aid for an all-cash purchase price of $4.375 billion. Rite Aid and WBA expect to continue to transfer ownership of the stores in phases over the coming months. Since the majority of the closing conditions have been satisfied, and the subsequent transfers of Rite Aid stores and related assets remain subject to minimal customary closing conditions applicable only to the stores being transferred in those phases, the company classified the assets and liabilities to be sold to WBA-1,932 stores and three distribution centers- as held for sale and the corresponding operating results and cash flows of those stores as discontinued operations in its financial statements in accordance with GAAP.

 

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