Rite Aid Lowers Full-Year Guidance Amid Q3 Earnings Report

Amid the release of its third-quarter earnings, Rite Aid Corp. has narrowed its outlook for fiscal 2023 revenues and lowered its outlook for net loss and adjusted EBITDA.

“Our third quarter beat consensus on top and bottom line, and we’re pleased with our results at [wholly owned pharmacy services subsidiary] Elixir and our accelerated sales growth at retail. However, based on recent trends, we are lowering our full-year guidance due to headwinds including pharmacy margin, seasonal markdowns and higher shrink,” said Heyward Donigan, president and CEO. “In addition, we are kicking off a performance acceleration program, which allows us to fast-track initiatives that will improve sales, script volume and operating margins, and free up cash.”

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Donigan added that the company had already mobilized and trained more than 400 associates on this new performance acceleration program, with the aim of improving business discipline and driving outcomes that increase growth and profitability.

For the third quarter, ended Nov. 26, revenues at Rite Aid were $6.08 billion, compared with revenues of $6.23 billion in the prior year’s quarter, largely due to a reduction in revenue from COVID vaccines and testing, store closures, and a planned loss of covered lives at Elixir.

The company also reported a net loss of $67.1 million, or $1.23 per share. The prior-year net loss was $36.1 million, or 67 cents per share. The increase in net loss was due primarily to a decrease in adjusted EBITDA, a rise in interest expense and an increase in restructuring charges. Adjusted EBITDA for the third quarter was $121.9 million, compared with last year’s $154.8 million.

However, net losses were partly offset by increases in both comparable and front end sales. Same-store sales for the third quarter climbed 7.5%, consisting of a 9.5% increase in pharmacy sales and a 2.2% increase in front end sales. Front end same-store sales, excluding tobacco products, rose 2.7%. Total same-store prescriptions increased 4.4%; excluding COVID immunizations, prescriptions ticked up by 3.6%.

“Turning to the front end, we're pleased to post market share gains of 20 basis points in the third quarter,” said Donigan. “Front end same-store sales were aided by good results in [the] health, consumable and the beauty categories, offset by underperformance in alcohol and general merchandise.”

Another bright note was digital. Noted Donigan: “We have strong momentum in our digital business, with sales up 65% year to date over last year, and healthy margin contributions as well, up over 50% in EBITDA from prior year. Our loyalty program also delivered strong results, with 500,000 new members enrolled in the quarter. Rite Aid Rewards members spend 34% more on their front end basket compared to non-members.”

Shrink for the quarter was $9 million worse than the prior year's third quarter. The company expects shrink to be a continued headwind in the fourth quarter.

Looking ahead to fiscal 2023, total revenues are expected to be between $23.7 billion and $24.0 billion. Net loss is anticipated to be between $584 million and $551 million. Adjusted EBITDA is expected to be between $410 million and $440 million versus prior guidance of between $450 million and $490 million, due to expectations of lower pharmacy margins, cautious consumer demand, and the related impact on seasonal markdowns and continued shrink expense. Adjusted net loss per share is expected to be between $2.18 and $1.78.

Capital expenditures are anticipated to be approximately $225 million for fiscal 2023.

“We're introducing technology and innovation to streamline core non-dispensing tasks such as inventory management, automating customer prescription transfer requests and taking non-pharmacist calls out of the stores,” noted Donigan.

Philadelphia-based Rite Aid employs more than 6,300 pharmacists at 2,300-plus retail pharmacy locations across 17 states. The company is No. 21 on The PG 100, Progressive Grocer’s 2022 list of the top food and consumables retailers in North America.