Overview
We are a healthcare company with a retail footprint, providing our customers and
communities with a high level of care and service through various programs we
offer through our two reportable business segments, our Retail Pharmacy segment
and our Pharmacy Services segment. We accomplish our goal of delivering
comprehensive care to our customers through our retail drugstores and our PBM,
Elixir. We also offer fully integrated mail-order and specialty pharmacy
services through Elixir Pharmacy. Additionally, through Elixir Insurance ("EI"),
Elixir also serves seniors enrolled in Medicare Part D. When combined with our
retail platform, this comprehensive suite of services allows us to provide value
and choice to customers, patients and payors and allows us to compete in today's
evolving healthcare marketplace.
Retail Pharmacy Segment
Our Retail Pharmacy segment sells brand and generic prescription drugs and
provides various other pharmacy services, as well as an assortment of front-end
products including health and beauty aids, personal care products, seasonal
merchandise, and a large private brand product line. Our Retail Pharmacy segment
generates the majority of its revenue through the sale of prescription drugs and
front-end products at our over 2,300 retail pharmacy locations across 17 states
and through our e-commerce platform available at www.riteaid.com. We replenish
our retail stores through a combination of direct store delivery of
pharmaceutical products facilitated through our pharmaceutical Purchasing and
Delivery Agreement with McKesson, and the majority of our front-end products
through our network of distribution centers.
Pharmacy Services Segment
Our Pharmacy Services segment provides a fully integrated suite of PBM offerings
including technology solutions, mail delivery services, specialty pharmacy,
network and rebate administration, claims adjudication and pharmacy discount
programs. Elixir also provides prescription discount programs and Medicare Part
D insurance offerings for individuals and groups. Elixir provides services to
various clients across its different lines of business, including major health
plans, commercial employers, labor groups and state and local governments,
representing approximately 2.3 million covered lives, including approximately
0.7 million covered lives through our Medicare Part D insurance offerings.
Elixir continues to focus its efforts and offerings to its target market of
small to mid-market employers, labor unions and regional health plans, including
provider-led health plans and government sponsored Medicaid and Medicare plans.
Restructuring
Beginning in Fiscal 2019, we initiated a series of restructuring plans designed
to reorganize our executive management team, reduce managerial layers, and
consolidate roles. In March 2020, we announced the details of our RxEvolution
strategy, which includes building tools to work with regional health plans to
improve patient health outcomes, rationalizing SKU's in our front-end offering
to free up working capital and update our merchandise assortment, assessing our
pricing and promotional strategy, rebranding our retail pharmacy and pharmacy
services business, launching our Store of the Future format and further reducing
SG&A and headcount, including integrating certain back office functions in the
Pharmacy Services segment both within the segment and across Rite Aid. Other
strategic initiatives include the expansion of our digital business, replacing
and updating the Company's financial systems to improve efficiency, and movement
to a common client platform at Elixir. In April 2022, we announced further
strategic initiatives to reduce costs through the closure of unprofitable
stores, reduce corporate administration expenses, improve efficiencies in worked
payroll and other store labor costs, engage in a comprehensive review of
purchasing and other business processes in both the Retail Pharmacy and Pharmacy
Services segments in order to identify areas of opportunity, as well as expense
reductions at our Pharmacy Services segment. These and future restructuring
activities are expected to provide future growth and expense efficiency
benefits. There can be no assurance
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that our current and future restructuring charges will achieve the cost savings
and remerchandising benefits in the amounts or time anticipated.
Impact of COVID-19
In March 2020, the outbreak of COVID-19 caused by a novel strain of the
coronavirus was recognized as a pandemic by the World Health Organization. The
COVID-19 pandemic has severely impacted the economies of the United States and
other countries around the world.
Since the onset of the COVID-19 pandemic, Rite Aid has been on the front lines
of providing communities with essential care, services and products, including
the administration of COVID-19 testing and vaccines. We have taken numerous
steps to ensure that Rite Aid can continue providing these vital services during
this time of great need, including hiring additional full and part-time
associates to support our stores and distribution center teams, providing our
front line associates with our Hero Pay and Hero Bonus programs and instituted a
Pandemic Pay policy that ensures associates are compensated if diagnosed with
the virus or quarantined due to exposure. We also implemented safety protocols
to keep our associates and customers safe, and transitioned our office-based
associates to a remote work environment. Our strong local presence and scale in
communities in our markets enables us to play a central role in the response to
COVID-19, as well as provide seamless support for our customers wherever they
need it; at our stores and at their homes through our delivery services.
The COVID-19 pandemic had a significant impact on our operating results for the
thirteen and twenty-six week periods ended August 27, 2022 and August 28, 2021
and will continue to have an impact on several factors underlying our operating
results and liquidity in fiscal 2023. Those factors include the number of
individuals that receive a COVID-19 vaccine or booster; demand for COVID-19
testing; the timing and extent to which elective procedures return to
pre-pandemic levels; the demand for flu and other immunizations and the length
and severity of the upcoming cough, cold and flu season.
Overview of Financial Results
Our net loss for the thirteen week period ended August 27, 2022 was $331.3
million or $6.07 per basic and diluted share compared to a net loss of $100.3
million or $1.86 per basic and diluted share for the thirteen week period ended
August 28, 2021. Our net loss for the twenty-six week period ended August 27,
2022 was $441.5 million or $8.11 per basic and diluted share compared to a net
loss of $113.4 million or $2.10 per basic and diluted share for the twenty-six
week period ended August 28, 2021. The increase in net loss for the thirteen and
twenty-six week periods ended August 27, 2022 was due primarily to a current
quarter charge of $252.2 million, or $4.62 per share, for the impairment of
goodwill related to the Pharmacy Services segment. Net loss was also impacted by
higher facility exit and impairment charges driven by the Company's previously
announced store closures. These items are partially offset by a gain on our
repurchase of certain bonds at a discount, a gain on sale of assets resulting
primarily from sale leasebacks of two distribution centers and script file sales
resulting from the store closures.
Our Adjusted EBITDA for the thirteen and twenty-six week periods ended August
27, 2022 was $78.5 million or 1.3% of revenues and $178.7 million or 1.5% of
revenues, respectively, compared to $106.2 million or 1.7% of revenues and
$245.0 million or 2.0% of revenues, respectively, for the thirteen and
twenty-six week periods ended August 28, 2021.
The decrease in Adjusted EBITDA for the thirteen week period ended August 27,
2022 was due to a decline in the Retail Pharmacy segment, partially offset by an
increase in the Pharmacy Services segment. Adjusted EBITDA decreased $37.9
million in the Retail Pharmacy segment due primarily to a decrease in gross
profit, partially offset by a decrease in selling, general and administrative
expenses ("SG&A") of $45.0 million. Adjusted EBITDA in the Pharmacy Services
segment increased $10.3 million due primarily to an increase in gross profit
resulting from improved network performance, increases in rebates, and
reductions in SG&A expense, partially offset by the decline in revenues
associated with lost clients.
The decrease in Adjusted EBITDA for the twenty-six week period ended August 27,
2022 was due to declines in both the Retail Pharmacy segment and the Pharmacy
Services segment. Adjusted EBITDA decreased $59.1 million in the
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Retail Pharmacy segment due primarily to a decrease in gross profit, partially
offset by a decrease in SG&A of $85.4 million. Adjusted EBITDA in the Pharmacy
Services segment decreased $7.2 million due primarily to the decline in revenues
associated with lost clients, partially offset by higher retained rebates from
our new rebate aggregation arrangement.
Please see the sections entitled "Segment Analysis" and "Adjusted EBITDA,
Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and
Other Non-GAAP Measures" below for additional details.
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