Rite Aid Corporation (RAD) Shares Plunge After Cutting Earnings Outlook

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The shares of Rite Aid Corporation (NYSE:RAD) suffered a significant decline after lowering its fiscal 2015 outlook. The retail pharmacy firm expects to deliver weaker adjusted EBITDA results for the May quarter due to higher than expected drug costs.

The stock price of Rite Aid Corporation (NYSE:RAD) dropped nearly 9% to $7.75 per share as of 11:50 AM ET in New York.

Rite Aid fiscal 2015 revised outlook

Rite Aid Corporation (NYSE:RAD) estimated that its adjusted EBITDA for fiscal 2015 will be in the range of $1.275 billion and $1.350 billion. Its net income is expected to be around $298 million and $408 million or $0.30 to $0.40 in earnings per shares.

The company previously estimated that it will be able to deliver earnings in the range of $0.31 to $0.43 per share. Rite Aid Corporation (NYSE:RAD) maintained its previous guidance for sales, same store sales increases and capital expenditures.

Rite Aid preliminary quarterly results

Rite Aid Corporation (NYSE:RAD) reported its preliminary results for the first quarter ending May 31, 2014. The drug store chain estimated that its adjusted EBITDA will be around $278 million to $285 million, net income between $35 million to $45 million and $0.04 earnings per share.

According to the company, its quarterly results are expected to be lower than its performance during the year-ago quarter based on pharmacy margin trends. Rite Aid Corporation (NYSE:RAD) explained, “Higher-than-expected drug costs resulting from a delay in realizing the level of expected generic purchase price reductions and a greater-than-expected reduction in reimbursement rates.”

The estimated $0.04 quarterly earnings per share of Rite Aid Corporation (NYSE:RAD) is lower than the $0.08 per share estimated by analysts polled by Thomson Reuters. The company is scheduled to release its quarterly financial results on June 19,

May sales performance

Rite Aid Corporation (NYSE:RAD) reported a 3.5% increase in same store sales in May. The drug store chain’s front-end sale store sales rose 0.5% and pharmacy same store sales climbed 5% (including 156 basis points negative impact from new generic drug introductions). Its prescription count at comparable stores rose 4.2%.

According to the company, its total drugstore sales increased 2.4% to $2.484 billion from $2.423 billion in May last year. Its prescription sales represent 68% of its drugstore sales while third-party prescription sales account 97.4% of pharmacy sales.

Rite Aid Corporation (NYSE:RAD) operated 4,581 stores as of the end of the month. The company has been trying to broaden and diversity its business model. In February, Rite Aid entered a distribution agreement with McKesson Corporation (NYSE:MCK) including generic drugs.

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