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RA

RITE AID CORP (RADCQ)·Q2 2023 Earnings Summary

Executive Summary

  • Q2 FY2023 revenues were $5.90B (-3.5% y/y), GAAP EPS was -$6.07 driven by a $252.2M non-cash goodwill impairment in the Pharmacy Services segment; adjusted EPS was -$0.63 and adjusted EBITDA was $78.5M (1.33% margin) .
  • Retail Pharmacy comps rose 5.6% (pharmacy +8.0%, front-end -0.3%), with acute scripts ex-COVID +5.3%; Elixir adjusted EBITDA improved to $47.1M (2.7% margin) despite revenue decline from planned membership reductions and a prior client loss .
  • FY2023 guidance: revenue maintained ($23.6–$24.0B), but adjusted EBITDA lowered to $450–$490M (from $460–$500M) and net loss widened to $520.3–$477.3M; adjusted EPS guide moved to -$1.52 to -$0.97 .
  • Catalysts: goodwill impairment and EBITDA guidance cut, offset by SG&A reductions ($45M in Q2) and improved Elixir margins; management flagged “continued pressure on consumer spending and supply chain challenges” .

What Went Well and What Went Wrong

What Went Well

  • Prescription momentum: same-store scripts +2.1% ex-COVID, with acute scripts ex-COVID +5.3% and maintenance +1.2%; total scripts (30-day equivalents) +3.1% .
  • Elixir margin improvement: Pharmacy Services adjusted EBITDA increased to $47.1M (2.7% margin) on improved network performance, higher rebates, and SG&A reductions .
  • Cost control: Retail SG&A down $45.0M in Q2; management highlighted ongoing SG&A efficiencies and debt reduction activities (“$40M debt reduction from successful bond tender offer”) and “on track to exceed $170M of SG&A savings for FY23” .
  • CEO tone: “We’ve made good progress on key initiatives during the quarter: driving prescription growth and market share, improving operating margins at Elixir and achieving reductions in SG&A expenses…” .

What Went Wrong

  • Top-line pressure: revenues fell to $5.90B (from $6.11B y/y), largely due to lower COVID vaccine/testing, store closures, and planned loss of covered lives at Elixir .
  • Profitability compression: adjusted EBITDA declined to $78.5M from $106.2M y/y; Retail adjusted EBITDA fell to $31.5M (0.7% margin) from $69.4M (1.6% margin) y/y on lower gross profit from reduced COVID services .
  • Large non-cash impairment: $252.2M goodwill impairment in Pharmacy Services drove GAAP net loss to -$331.3M (-$6.07 per share) versus -$100.3M (-$1.86) y/y; guidance for adjusted EBITDA and net loss was cut/widened .

Financial Results

MetricQ4 FY2022Q1 FY2023Q2 FY2023
Revenue ($USD Millions)$6,065.4 $6,014.6 $5,901.1
GAAP EPS ($)-$7.18 -$2.03 -$6.07
Adjusted EPS ($)-$1.63 -$0.60 -$0.63
Adjusted EBITDA ($USD Millions)$106.1 $100.1 $78.5
Adjusted EBITDA Margin (%)1.75% 1.66% 1.33%

Segment breakdown (Q2 FY2023 vs Q2 FY2022):

SegmentQ2 FY2022 Revenues ($MM)Q2 FY2023 Revenues ($MM)Q2 FY2022 Adj. EBITDA ($MM)Q2 FY2023 Adj. EBITDA ($MM)Adj. EBITDA Margin Q2 FY2022Adj. EBITDA Margin Q2 FY2023
Retail Pharmacy$4,277.2 $4,231.8 $69.4 $31.5 1.62% 0.74%
Pharmacy Services$1,898.2 $1,727.2 $36.8 $47.1 1.94% 2.72%

KPIs:

KPIQ4 FY2022Q1 FY2023Q2 FY2023
Same-Store Sales (Total)+8.3% +4.6% +5.6%
Pharmacy Same-Store Sales+10.7% +6.6% +8.0%
Front-End Same-Store Sales+2.7% -0.5% -0.3%
Front-End ex Tobacco+3.2% 0.0% +0.2%
Script Count (30-day eq.)+8.7% +0.9% +3.1%
Maintenance Scripts (SSS)+1.0% +1.4% +1.2%
Acute Scripts ex-COVID (SSS)+9.0% +11.9% +5.3%
Rx Mix (% of Sales)70.1% 70.8% 70.7%
Store Count2,450 2,361 2,352

Guidance Changes

MetricPeriodPrevious Guidance (Q1 FY2023)Current Guidance (Q2 FY2023)Change
Total Revenue ($B)FY2023$23.6–$24.0 $23.6–$24.0 Maintained
Net Loss ($MM)FY2023$(246.3)–$(203.3) $(520.3)–$(477.3) Lowered (widened loss)
Adjusted EBITDA ($MM)FY2023$460–$500 $450–$490 Lowered
Adjusted EPS ($)FY2023-$1.19 to -$0.66 -$1.52 to -$0.97 Lowered
Retail Pharmacy Adj. EBITDA ($MM)FY2023$320–$350 $305–$335 Lowered
Pharmacy Services Adj. EBITDA ($MM)FY2023$140–$150 $145–$155 Raised
Capital Expenditures ($MM)FY2023~$250 ~$225 Lowered
Free Cash FlowFY2023Expect positive Expect positive Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2022 and Q1 FY2023)Current Period (Q2 FY2023)Trend
Supply chain & consumer demandOutlook assumed front-end margin improvements via loyalty and owned brands; no explicit supply chain commentary (Q4) Management expects “continued pressure on consumer spending and supply chain challenges” Heightened caution
Digital & omnichannelDigital revenue +109% y/y; loyalty program rollout; BOPIS/third-party marketplace expansion (Q1) 70% y/y growth in first/third-party and delivery marketplaces; loyalty program front-end markdown reduction Continued progress
Store closures & SG&A savingsPlan to close 145 stores; target $170M FY23 savings (Q4) SG&A down $45M in Q2; “on track to exceed $170M of SG&A savings for FY23” Execution improving
Elixir PBM performanceWeak Q4 PBM EBITDA; client loss; higher MLR; exit rebate aggregation (Q4) Improved network performance and rebates; Elixir EBITDA up to $47.1M despite revenue decline Margin recovery
COVID immunizationsBenefit of 3.3M vaccinations in Q4; cycling COVID impact in Q1 Ready to meet high demand for immunizations (seasonal wave) Seasonal tailwind
Capital & liquidityNo debt due until 2025; improved leverage ratio (Q4) $40M debt reduction via tender; $46M sale-leaseback proceeds; “No debt due until 2025” reiterated Deleveraging actions

Management Commentary

  • CEO: “We’ve made good progress on key initiatives during the quarter: driving prescription growth and market share, improving operating margins at Elixir and achieving reductions in SG&A expenses… As we look to the second half of the year, we expect continued pressure on consumer spending and supply chain challenges. At the same time, we are ready to meet a high demand for immunizations…” (Heyward Donigan) .
  • CEO (prior quarter context): “We continue to make strides on our journey to transform Rite Aid and define the modern pharmacy... increased our non-COVID prescriptions, reduced SG&A, built momentum at Elixir” (Q1) .
  • Execution highlights (slides): “Reduced total company Adjusted EBITDA SG&A expenses by $45M in Q2… $40M debt reduction from successful bond tender offer… Sale leaseback proceeds $46M… No debt due until 2025… On track to exceed target of $170M of SG&A savings for FY23” .

Q&A Highlights

  • The Q2 FY2023 earnings call transcript was not available in our document set; management scheduled an analyst call at 8:30 a.m. ET and provided webcast/replay details, but we could not access Q&A content for theme extraction .

Estimates Context

  • Wall Street consensus (S&P Global) for RADCQ Q2 FY2023 was unavailable due to missing CIQ mapping for the ticker; attempts to retrieve estimates failed, so we cannot provide a vs-consensus comparison. Values would normally be retrieved from S&P Global.

Key Takeaways for Investors

  • Mix shift away from COVID services and store closures pressured revenue and Retail EBITDA; comps remained healthy (+5.6% total, pharmacy +8.0%), supporting script growth durability .
  • Pharmacy Services (Elixir) showed margin recovery (adjusted EBITDA $47.1M, 2.7% margin) despite revenue headwinds from membership/client loss, aided by network optimization and rebates .
  • Guidance reset: adjusted EBITDA lowered to $450–$490M and net loss widened to $520.3–$477.3M for FY2023, reflecting macro caution and impairment; investors should recalibrate near-term profitability expectations .
  • Balance sheet actions continue (bond tender, sale-leasebacks), and the company reiterated no maturities until 2025, providing runway to execute SG&A and margin initiatives .
  • Cost program execution is tangible (Q2 SG&A -$45M); management targets >$170M FY23 SG&A savings, a key lever to offset reimbursement pressure and lower COVID tailwinds .
  • Seasonal immunizations are a potential Q3/Q4 tailwind, but management highlights consumer spending and supply chain as offsetting risks to front-end profitability .
  • With consensus data unavailable, monitor sell-side revisions post-guidance cut; the impairment and EBITDA reset were primary narrative drivers in Q2 .