Rite Aid Corporation RADdelivered better-than-expected bottom-line results for fourth-quarter fiscal 2018, marking a considerable improvement from its recent trend. However, the top line continued to disappoint, lagging the estimates and declining year over year.
The company’s improved bottom-line results can be attributed to the stabilization of reimbursement rates, a decline in drug purchasing costs and a record number of immunizations that enhanced pharmacy margins for the quarter.
Other key highlights of the quarter were solid results at the Retail Pharmacy Segment with higher adjusted EBITDA, strong start to Pharmacy Services segment in the new commercial selling season just after the fourth quarter, completion of the sale of 1,932 stores to Walgreens Boots Alliance Inc. WBAand a merger agreement with Albertsons Companies.
As of Mar 27, 2018, Rite Aid completed the transfer of 1,932 stores and related assets to Walgreens for $4.157 billion. It now plans to transfer the three distribution centers and related inventory, starting Sep 1, 2018. With the cash proceeds, management has been lowering debt. As a result, its debt, net of cash, was $2.9 billion as of Mar 3, 2018.
Additionally, the company agreed to merge with Albertsons on Feb 20, 2018. So far, the boards of directors of both the companies have approved the transaction and the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 has expired. The companies expect to close the merger in the second half of calendar year 2018.
Though the transfer of stores to Walgreens and the merger with Albertsons are positives for the stock, it has declined 31.8% in the last three months, probably because of the lack of robust operating results. Moreover, the decline in share price reflects an underperformance from the industry’s fall of 16.6%.