RiteAid had the seventh consecutive quarter of EBITDA growth.
Pharmacy revenues were negatively impacted by 750 basis points by the impact of new generic prescriptions. However, the generics are having a positive impact on pharmacy gross margins. Generic penetration was 80 percent in Q2, an increase of 4 percent.
The flu shot program is ahead of last year's pace. RiteAid's goal is to administer 2 million flu shots. It administered 1.5 million last year. Rite Aid will be having a comprehensive marketing campaign for its flu shots.
At the end of Q2, Rite Aid had 25 million active wellness + members, an increase of 8 percent. The number of gold and silver members continue to increase. Wellness+ members accounted for 74 percent of front end sales versus 69 percent a year ago and accounted for 68 percent of prescription sales versus 67 percent a year ago. Rite Aid recently launched a new feature called Load2Card that loads +UP rewards directly to the card. The company also has an extensive marketing campaign planned for the second half of the year to reinforce the benefits of its loyalty program. The gold and silver members are much more frequent visitors; about half of them shop every week. There are about 40 to 50 percent more wellness+ members than the non-Wellness members.
In Q2, Rite Aid converted an additional 147 stores to its Wellness format. It has now 570 Wellness stores with a goal to convert 500 stores during fiscal year 2013 and have a total of 780 Wellness stores. Rite Aid is continuing to enhance the Wellness stores and its newest enhancements can be seen in the Harrisburg market stores, which have new decor, additional Wellness items, and unique merchandising presentations. One of the Harrisburg stores is comping higher after the enhancements. RiteAid does not plan to do the enhancements at every store, but at higher volume, higher potential stores.
Private label penetration in Q2 was 18.4 percent, an increase of 1.2 percent.
During Q2, Rite Aid completed $11 million in prescription file purchases.
In Q2, RiteAid closed 9 stores and did not open any net new stores. Over the past year, Rite Aid closed 54 net fewer stores.
Financials.
Revenues declined by 65 basis points from last year, due primarily to a higher percentage of generic prescription sales.
Same store sales were flat overall. Same store sales increased by 1.4 percent in the front end, but decreased by .7 percent in the pharmacy. Prescriptions for same stores increased by 4 percent from last year, which includes the additional prescriptions from the Express Scripts/Walgreen dispute. RiteAid expects the negative impact of generic prescription sales to continue into Q3. For fiscal year 2013, RiteAid expects same stores sales to range between a decrease of 100 basis points to an increase of 25 basis points.
Adjusted EBITDA was 3.5 percent of revenues, an increase of 19 percent. Adjusted EBITDA gross profit, which excludes LIFO and wellness+ revenue deferral, increased by 94 basis points as a percentage of revenue. Front end gross profit was lower due to higher-tier discounts from the loyalty program and higher ad markdowns, although this was partially offset by higher Rite Aid brand penetration. Pharmacy gross profit was higher due to growth in script count and the benefit of new generics, although this was partially offset by pharmacy reimbursement rate pressure.
SG&A expenses increased by 40 basis points as a percentage of revenue as a result of wage and benefit increases, higher costs with incremental pharmacy hours from the added script volume, and costs associated with the Wellness remodel.
Net loss was reduced by $53.5 million versus the same quarter last year. Loss per share was $.05 versus a loss of $.11 last year. For fiscal year 2013, RiteAid expects its net loss to range between $.23 and $.09 per diluted share.
FIFO inventory was $91.9 million lower than last year and a result of high generic inventory, which is valued at a lower cost, and the company's inventory reduction initiative.
At the end of Q2, RiteAid has $1.05 billion of liquidity. It had not used its revolver borrowing under its credit facility and letters of credit. As of the date of the conference call, Rite Aid had $1.256 billion of liquidity. Total debt was lower than last year by $32 million.
The transcript of the earnings conference call can be found on Seeking Alpha at the following link:
http://seekingalpha.com/article/878661-rite-aid-management-discusses-q2-2013-results-earnings-call-transcript?part=single
Copyright 2012 Jaygo's Earnings Conference Call Summaries
This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
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