Shares of Rite Aid tumbled almost 20 percent on Thursday (March 25) after the pharmacy chain said that a nearly 40 percent decline in its high-margin cough, cold and flu remedies business this winter “significantly impacted” its quarterly results.
The earnings and revenue pre-announcement by the operator of 2,400 stores in 17 states came just three weeks ahead of the scheduled release of its Q4 and full-year results on April 15, and raised broader concerns that its competitors may also have been impacted by the slackening of sickness and harsh winter weather trends.
“[For the quarter and fiscal year ending Feb. 27, 2021] our industry was impacted by a historically soft cough, cold and flu season, as well as the continued impacts of COVID on the deferral of elective procedures and related acute prescription volume and selling, general and administrative expenses,” Rite Aid CEO Heyward Donigan said in a statement, which also cited significant weather events in February as a factor for the $50-$60 million shortfall.
Nothing to Sneeze At
As much as the COVID vaccine rollout has driven foot traffic and business into Rite Aid, CVS and Walgreens locations, as of now, the third-ranked player in the segment is the only one to quantify the impacts. It remains to be seen whether its weather-related warning will turn out to be contagious.
Officially, Rite Aid said its front-end comparable same-store sales fell nearly 6 percent in the quarter, driven by a close to 37 percent plunge in the cough, cold and flu categories. “The decline in these categories had a disproportionately negative impact on front-end gross profit, as these are comprised of higher-margin products,” the company said.
At the same time, Rite Aid said that a 14 percent decline in acute prescriptions dragged its overall back-of-the-store medication sales down by about 1 percent.
A Sharp Reaction
Prior to its pre-announcement, Rite Aid had been on a tear in the market, with its shares more than doubling over the past six months and lifting its market value back to nearly $2 billion, far outpacing the performance of its exponentially larger rivals during that time. However, on a longer-term five-year basis, CVS, Walgreens and Rite Aid have all underperformed the broader market’s 90+ percent advance since 2016, and have fallen 28, 38 and 88 percent, respectively.
Officially, Rite Aid said that about 40 percent of the revenue miss was a result of the cold and flu season, another 40 percent was due to the extreme winter weather, and the final 10 percent shortfall came from the continued effects of COVID-19.
The company now expects its full-year revenues to be approximately $24.0 billion, with same-store sales expected to be up about 3.5 percent, and anticipates a net loss of $90 to $100 million.
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