Supply Chain

Rite Aid Swallows Tough Medicine in First Quarter

Drug reimbursement rate pressure leads to a $4.6 million net loss for the pharmacy chain.
Katie Kuehner-HebertJune 16, 2016

Rite Aid on Thursday posted lower-than-expected revenues and earnings for its fiscal first quarter 2017, due to pressure on pharmacy reimbursement rates.

The Camp Hill, Pa., drugstore chain reported revenues of $8.2 billion, a net loss of $4.6 million, or zero cents per diluted share, for the quarter ended May 28. Excluding certain items, adjusted net income was $14.5 million, or 1 cent per diluted share, compared with 2 cents a year earlier.

Analysts polled by Thomson Reuters had forecast adjusted earnings of 5 cents on $8.26 billion in revenue.

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“Our challenge was pharmacy reimbursement rate pressure, which we were unable to offset largely due to drug purchasing efficiencies that did not meet our expectations,” Rite Aid’s chairman and chief executive John Standley said in a press release.

While drug cost reductions will continue to be short of the company’s expectations in the near term, management anticipates improvements over the second half of the year.

Rite Aid still expects its $17.2 billion deal to merge with Walgreens Boots Alliance, which is awaiting regulator approval, to close in the second half of the year.

Rite Aid’s retail sales rose 0.4% to $6.7 billion, primarily as a result of an increase in same store sales. Revenues from pharmacy services was $1.6 billion. The new segment is a result of the 2015 acquisition of pharmacy-benefit manager Envision Pharmaceutical Services.

“The chain, like its rivals, has adjusted its offerings to broaden its business model as the pharmacy and drugstore industry expands into the health and wellness sector,” The Wall Street Journal wrote. “During the quarter, it added two new RediClinics, bringing its total to 80, and remodeled 79 wellness stores, which offer organic food and natural personal-care options and feature consultation rooms for discussions with pharmacists.”