CAMP HILL, Pa.--(BUSINESS WIRE)--

Rite Aid Corporation (NYSE:RAD) today reported operating results for its third fiscal quarter ended November 26, 2016.

For the third quarter, the company reported revenues of $8.1 billion, net income of $15.0 million, or $0.01 per diluted share, Adjusted net income of $23.3 million, or $0.02 per diluted share and Adjusted EBITDA of $274.1 million, or 3.4 percent of revenues.

“Despite the difficult operating environment created by the extended duration of the merger process with WBA, our third quarter results show solid performance in our front-end business, good cost control and continued strong growth at our pharmacy benefit manager, EnvisionRx,” said Chairman and CEO John Standley. “Reimbursement rates remain our largest challenge and we expect that to continue for the remainder of the fiscal year. Moving forward, we will remain focused on improving the health of our patients through clinical services like immunizations and medication adherence, converting additional stores to our highly successful Wellness format and working as a team to deliver a consistently outstanding experience to our customers.”

Third Quarter Summary

Revenues for the quarter were $8.1 billion compared to revenues of $8.2 billion in the prior year’s third quarter, a decrease of $64.5 million or 0.8 percent. Retail Pharmacy Segment revenues were $6.5 billion and decreased 3.1 percent compared to the prior year period primarily as a result of a decrease in same store sales. Revenues in the company’s Pharmacy Services Segment were $1.6 billion and increased 9.7 percent compared to the prior year period.

Same store sales for the quarter decreased 3.4 percent over the prior year, consisting of a 4.7 percent decrease in pharmacy sales and a 0.4 percent decrease in front-end sales. Pharmacy sales included an approximate 182 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores decreased 2.4 percent over the prior year period. Prescription sales accounted for 68.9 percent of total drugstore sales, and third party prescription revenue was 98.2 percent of pharmacy sales.

Net income was $15.0 million or $0.01 per diluted share compared to last year’s third quarter net income of $59.5 million or $0.06 per diluted share. The decline in operating results is due primarily to a decline in Adjusted EBITDA, partially offset by lower income tax expense.

Adjusted EBITDA (which is reconciled to net income on the attached table) was $274.1 million or 3.4 percent of revenues for the third quarter compared to $373.2 million or 4.6 percent of revenues for the same period last year. The decline in Adjusted EBITDA is due to a decrease of $117.5 million in the Retail Pharmacy Segment, resulting from lower pharmacy gross profit, partially offset by an increase in front end gross profit. Pharmacy gross profit decreased because of lower reimbursement rates and script count. The decline in Retail Pharmacy Segment Adjusted EBITDA was partially offset by an increase of $18.5 million of Pharmacy Services Segment Adjusted EBITDA. This was due to an increase in revenues and strong operating results in the current year.

In the third quarter, the company opened 3 stores, relocated 9 stores, and remodeled 95 stores, bringing the total number of wellness stores chainwide to 2,322. The company also acquired 1 store and closed 7 stores, resulting in a total store count of 4,547 at the end of the third quarter. The company also opened 2 clinics in the third quarter, bringing the total to 92.

Rite Aid Merger with Walgreens Boots Alliance

As announced on Dec. 20, 2016, Walgreens Boots Alliance, Inc. (“WBA”) and Rite Aid have entered into an agreement to sell 865 Rite Aid stores and certain assets related to store operations to Fred’s, Inc. (“Fred’s”) for $950 million in an all-cash transaction. The transaction is subject to Federal Trade Commission (“FTC”) approval of the sale of the stores to Fred’s, FTC approval and completion of the pending acquisition of Rite Aid by WBA and other customary closing conditions.

The agreement was entered into to respond to concerns identified by the FTC in its review of the proposed acquisition of Rite Aid by WBA which was announced in October 2015. While WBA is actively engaged in discussions with the FTC regarding the transaction and is working toward a close of the Rite Aid acquisition in early calendar 2017, there can be no assurance that the requisite regulatory approvals will be obtained, or that the transactions will be completed within the required time period.

Rite Aid is one of the nation’s leading drugstore chains with 4,547 stores in 31 states and the District of Columbia. Information about Rite Aid, including corporate background and press releases, is available through Rite Aid’s website at www.riteaid.com.

Cautionary Statement Regarding Forward Looking Statements

Statements in this release that are not historical and statements regarding the expected timing of the closing of the proposed merger with WBA and the ability of the parties to complete such transaction considering the various closing conditions and any assumptions underlying any of the foregoing, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements regarding the expected timing of the closing of the merger with WBA and sale of stores and assets to Fred's, as well as the ability of the parties to complete the transactions considering the various closing conditions. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” and “will” and variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, our high level of indebtedness and our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our debt agreements; general economic, industry, market, competitive, regulatory and political conditions; our ability to improve the operating performance of our stores in accordance with our long term strategy; the impact of private and public third-party payers continued reduction in prescription drug reimbursements and efforts to encourage mail order; our ability to manage expenses and our investments in working capital; outcomes of legal and regulatory matters; changes in legislation or regulations, including healthcare reform; our ability to achieve the benefits of our efforts to reduce the costs of our generic and other drugs; risks related to the proposed transactions, including the possibility that the transactions may not close, including because one or more closing conditions to the transactions, including certain regulatory approvals, may not be satisfied or waived, on a timely basis or otherwise, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transactions, or may require conditions, limitations or restrictions in connection with such approvals; the risk that there may be a material adverse change of Rite Aid or the stores proposed to be sold to Fred's, or the business of Rite Aid or the stores proposed to be sold to Fred's may suffer as a result of uncertainty surrounding the transactions; risks related to the ability to realize the anticipated benefits of the proposed transactions, risks associated with the financing of the proposed transactions; disruption from the proposed transactions making it more difficult to maintain business and operational relationships; significant transaction costs; unknown liabilities; the risk of litigation and/or regulatory actions related to the proposed transactions; and other business effects. These and other risks, assumptions and uncertainties are more fully described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K, in the definitive proxy statement that we filed with the Securities and Exchange Commission on December 21, 2015 in connection with the proposed merger, and in other documents that we file or furnish with the Securities and Exchange Commission, which you are encouraged to read. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Additionally, there can be no assurance that the requisite regulatory approvals for the proposed merger and proposed sale of stores and assets to Fred's will be obtained, or that the proposed transactions will be completed within the required time period or that the expected benefits of the proposed transactions will be realized. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Rite Aid expressly disclaims any current intention to update publicly any forward-looking statement after the distribution of this release, whether as a result of new information, future events, changes in assumptions or otherwise.

Reconciliation of Non-GAAP Financial Measures

The company separately reports financial results on the basis of Adjusted Net Income, Adjusted Net Income per diluted share, and Adjusted EBITDA, which are non-GAAP financial measures. See the attached tables for a reconciliation of Adjusted Net Income, Adjusted Net Income per diluted share and Adjusted EBITDA to net income, and net income per diluted share, which are the most directly comparable GAAP financial measures. Adjusted Net Income and Adjusted Net Income per diluted share exclude amortization of EnvisionRx intangible assets, merger and acquisition-related costs, loss on debt retirements and LIFO adjustments. Adjusted EBITDA is defined as net income excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, inventory write-downs related to store closings, debt retirements and other items (including stock-based compensation expense, merger and acquisition-related costs, severance and costs related to distribution center closures, gain or loss on sale of assets and revenue deferrals related to our customer loyalty program).

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