Dive Brief:
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Rite Aid beat expectations for its fourth quarter results announced on Tuesday, reporting a net loss of $21.1 million or 2 cents per share, compared to earnings of $65.6 million, or 6 cents per share in the year ago period. The adjusted net loss of $3.2 million or 0 cents per adjusted share in the quarter was down from the 7-cent profit per adjusted share in the year ago period, but better than the 4-cent loss expected from FactSet analysts cited by MarketWatch.
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Q4 revenue was $8.54 billion, up from $8.27 billion in Q4 last year and besting the FactSet consensus forecast for $8.27 billion cited by MarketWatch.
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For the full year, the company reported revenues of $32.8 billion and net income of $4.1 million, or $0.00 per diluted share, adjusted net income of $66.8 million or 6 cents per diluted share, and adjusted EBITDA of $1.14 billion, or 3.5% of revenues. The fiscal 2017 fourth quarter and full year results benefited from the extra week in fiscal 2017, the company said.
Dive Insight:
Shares rose 4.6% in early trading Tuesday as Rite Aid beat expectations. The boost comes as delays in federal regulatory approval for its proposed merger with rival Walgreens Boots Alliance have weighed on the drugstore retailer as investors increasingly believe the tie-up will fail to go forward. Last week a trade publication reported that the FTC plans to block the deal in court.
Indeed, in his statement Tuesday, Rite Aid CEO John Standley said the company still expects the merger to go through, but that the wait has taken its toll on the company's results. Rite-Aid will embark on cost-cutting measures to shore up operations as a result, he said. “[W]e continue to face reimbursement rate challenges that we have been unable to offset with drug cost reductions. As we remain actively engaged in discussions with the Federal Trade Commission to gain regulatory approval for the merger, we are also taking steps to review our ongoing strategy, reduce costs and make necessary changes to our business to improve our performance going forward."
In December, the rivals announced an agreement to sell 865 stores to Fred’s for $950 million in cash in order to smooth approval of their deal. Earlier this year, they agreed to divest even more stores and reduce their merger price. “We’re a little surprised that Fred’s is able to buy 865 stores, but if approved it would be very significant to create a third national competitor,” Betty Chan, a senior analyst at Elevation Securities, told Retail Dive late last year. “Fred being a new national competitor now is something that the FTC would like to see — it’s just a question of whether or not they can hammer out the final details now.”
Rival drugstore chain CVS reportedly has warned the FTC that the sale to Fred’s isn’t sufficient to ensure competition, comparing the situation to Safeway’s sale of 146 stores to Haggen Holdings in 2015 in order to win antitrust clearance for its merger with Albertsons. Haggen eventually went bankrupt, and sold some stores back to Albertsons in the process. Bloomberg notes that the FTC may be vulnerable to such warnings and is hoping to avoid that kind of situation. But a spokesman from Fred's told Retail Dive earlier this year that the company is in a good position and is working closely with the FTC.
Despite confidence expressed by Walgreens and Rite Aid executives, some observers haven't been all that sanguine about the deal’s prospects, considering the antipathy the Obama-era FTC has shown against mega-mergers, including deals involving retailers. Last May, for example, regulators scuttled a proposed $6.3 billion tie-up between rivals Office Depot and Staples, despite Amazon’s entry into the office supplies retail and business contracts spaces. The FTC has just two members post-election, one Democrat and one Republican, so chances for a unanimous decision are seen as murky.