Dive Brief:
- Rite Aid's second quarter sales fell 1% year over year to $5.4 billion, with the drug store retailer's comparable sales down 0.6%.
- Operating loss narrowed by more than 70%, to $143 million, while net loss widened more than 20% to $178.9 million.
- Rite Aid's adjusted earnings beat the FactSet consensus while revenue fell short of analyst estimates by $40 million, according to MarketWatch.
Dive Insight:
Rite Aid CEO Heyward Donigan, who is just a few weeks onto the job, said in a statement that she was "optimistic about our future." But she also mentioned "urgency" in the need to finalize the retailer's strategic plans.
The retailer's revenue decline stemmed partly from its reduced store footprint, the company said, while new generic medications hurt the company's pharmacy sales.
Donigan said the company's adjusted earnings exceeded its own expectations, partly thanks to cost cuts. To that end, Rite Aid managed to slash around $40 million out of its cost of sales and nearly $20 million out of its administrative expenses compared to the year-ago period. The retailer cut hundreds of jobs earlier this year with the goal of saving $55 million a year in expenses.
With $3.8 billion in long-term debt, Rite Aid's interest expenses grew by about $4 million year over year, to $60.1 million for Q2.
That might explain some of the "urgency" in coming up with and executing a strategic plan, which Donigan said her team was working to finalize. The company plans to share key points of the plan in the coming months, she added.
Moody's Vice President Mickey Chadha wrote in a note earlier this year that the cuts were "necessary to align the company's cost structure to the smaller size of the company" and to offset declining income from a transition agreement with Walgreens around stores the latter acquired from Rite Aid two years ago.
Chada also said the cuts were a needed step "in light of the intense competitive pressures the company faces from much larger and well capitalized competitors like CVS and Walgreens in the changing pharmacy landscape as scale become increasingly important within the pharmacy sector."
It is indeed a tough landscape out there for smaller drugstore retailers. Just ask the regional chain Fred's, which filed for bankruptcy earlier this month with plans to shutter all its stores and sell off its pharmacies.
Small Business
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Ben Unglesbee, Khareem Sudlow
