Q4 2020 Earnings Call
Ladies and gentlemen, thank you for standing by my name is Carmen and I will be your conference operator today.
At this time I would like to welcome everyone to the Rite aid fourth quarter 2020 earnings Conference call.
He would like to ask questions via the phone line simply press star one on your telephone keypad.
To withdraw your question press the pound key [laughter] I would now like to turn the conference over to Byron Purcell head of Investor Relations. Please go ahead.
Thank you and good morning, everyone welcome it or fiscal 2024th quarter earnings conference call on.
The call me today, right were down again, President and Chief Executive Officer, Jim Peterson, Chief operating Officer.
Good way action President of the mature and match Schrader Chief Financial Officer.
On today's call. He will then provide introductory comments and an update on our response to the current 19.
Jim will provide an update on the retail business.
Provide an update on the pharmacy services business that will provide an update on the fourth quarter results and Cobra 19 financial impact and then we will take questions.
As we mentioned in our release, we are providing for a true when it's immaterial we'll be discussing today.
Roger better, though website www rite aid dot com under the Investor Relations information tab.
And I'll be referring to them in our remarks hope you'll find them helpful. I say summarize some of the key points made on the call.
Before we start I'd like to remind you today its coverage calling to certain forward looking statements. These forward looking statements are presented in the context of certain risks and uncertainties that can cause actual results to differ these risks and uncertainties are described in our press release, an item one day of her most recent annual report on form 10-K, another Dan.
Elements that we filed or furnished to the securities and Exchange Commission.
Also will be using certain ford or using certain non-GAAP measures in our release in the accompanying slides the definition of the non-GAAP measures along with a reconciliation of the related GAAP measure British rubbing or pressure, we since launch with these remarks I'd now like to turn it over to Hayward.
Hi, sorry.
Oh, thanks, everyone for joining up and since this is a first time, we'll be doing the coal all sitting in different thing.
Right.
Oh, Oh bear with us.
So we're going to discuss our results for Q4 and the here in just a few moments but.
Make no mistake, our top priority as a company right now it's serving our communities.
Of course, all righty customers aren't vision Rx options employer and health plan clients. During CES unprecedented covered my team crisis, and I must say I have over 30 years of experience in the healthcare industry, including dealing with stars on the swine flu, which I will never forget, but I don't think any of us and health care has.
We're in something like that so.
So it is new territory for all of Us and as a leader I've never been more proud that I am right now our righty HM.
Together, we're really working around the clock, making sure that we can continue to serve our communities.
On the importance of the supply chain has never been more evident in our distribution center cans are doing a good job. Despite the great difficulty we have getting as many central supplies, we would really like for our customer.
Despite that our teams are working really hard to ensure our shoulder stocks as quickly as those products are made available.
Our retail <unk> retail store associates are working together.
Implements aren't him cleaning and social distancing procedures as they are doing there just important everyday work. So it's really work on top of work and our pharmacy and where do clinic teams are doing the same and they're also providing our customers with the medication services and care they need very.
In this challenging time.
A more than 6400, Whitey pharmacists are proving their role on the front lines of health care is crucial and this crisis has showcase their central wall and health care and.
The corner store so of our go forward strategy.
Our field leadership, and corporate clients, including and visit our adoptions health dialog and ready clinics are working tirelessly to help keep our associates C and meet our customers' needs.
As a leadership team we continue to pay critical steps to protect the safety of our associates and customers.
We have and will continue to ship math.
Every front line associates install plexiglass at every retail location and provide here, okay euro bonus and pandemic paid program.
We're also working closely with the U.S. Department of health and human services to expand testing sites at our stores beyond a pilot locations Philadelphia.
Just last week, the writing Foundation announced a 5 million dollar contribution to support the nation's health care providers and first responders.
Support childrens families and communities impacted by this outbreak to address the geographic pandemic hot spots, which is really where rite aid stores are located.
We are keeping those communities and also to support why do own associates as they continue the battle because its 19 pandemics himself personally in many cases.
The additional steps we've taken our highlighted in today's press release, and we will continue to do more if we unite together and that's ongoing battle against an invisible and to me.
I'm really proud of the her well look at an extraordinary efforts of our case as a leader in the organization My top priority is to take care of our associates as we stand ready to serve our communities at a time when they need to smoke.
So when turning to our results for Q4 I'm also equally proud of our team for continuing to deliver strong result that provide the foundation for achieving our new strategic objective.
As a reminder of fourth quarter ended on February 29, which is before the code and lighting prices really begin to have a financial impact.
Later on today's call not will provide an update about how co that 19 has impacted our business and could impact going forward in terms of the quarter. We grew revenue across both segments delivered our second consecutive quarter over quarter improvement in adjusted EBITDA.
In our retail pharmacies, we increased same store sales in both the pharmacy and front end, while generating strong script count growth.
For Envisionrx options, which is soon to be renamed what's there.
Drove strong revenue growth by increasing our Medicare part D membership and grew adjusted EBITDA through improvements in managing our pharmacy network.
Overall this was a strong quarter for execution that help provide us with the important momentum heading forward.
This quarter poor performance is an acceleration of the crucial work we've been doing throughout the fiscal year.
As we plan for the future. We also moved with great urgency to turn this company around and again growing a gas.
So we built our new leadership team with top talent.
A job that it's still underway.
We reduced expenses at Whiting corporate by 55 million on an annual run rate basis.
We extended 35% of our bond maturities out to 2025.
We reduced our debt ever do sell a leverage ratio by more than a full turn.
Stabilized so retail business and handily beat our F. White 20 pharmacy player.
And we beat our looks or EBITDA plans, while also controlling.
As we said during analyst day, all this is important.
Very important but it won't be enough to get our company thriving.
As you know, we recently presented our vision for reintroducing Rite aid in the communities we serve.
We are committed to redefining our industry by launching a bold pharmacy first strategy that we call Rx evolution.
This strategy focuses on becoming the dominant midmarket PBM unlocking the value of our pharmacists and revitalizing our retail and digital experience.
As the coast at 19 crisis has unfolded, it's magnifies the importance of our go forward plans and the need for what we can and will offer in the communities we serve.
I want to finally get has reinforced that pharmacists are among the most trusted and accessible health care professionals and that we can empower our pharmacists to drive consumer engagement to levels not seen before on health care.
And it's reminded us that the retail products and services, we offer our essential to the communities we serve.
So we're hard at work not only in serving immediate needs of our communities, but also in staying encore without our clear vision for the future.
It's really a testament to our team, which is working literally around the clock to serve the immense needs of our communities.
Now moving forward with our strategic plan. So at this time I'd like to introduce them theater for additional uptake on Q4 as well as our strategic plan them.
Thank you a word.
I have been nothing short of inspired by the truly extraordinary efforts of our organization our associates, yeah, especially our store distribution centers associates.
Rite aid, we know we're not the only ones battling this crisis right now, but I can assure you. We are all hands on deck to do our park and more to serve our associates and communities. During this very challenging time.
It almost seems trivial to be discussing financial results during a time like this but.
The other like sustaining businesses throughout the World. We also know the importance of managing and executing on the day to day business should at Rite aid can continue serving our communities well beyond this crisis that for generations to come.
Fortunately our team had already been executing against our new Rx evolution strategy as we enter fiscal Q4, which helped us deliver a strong quarter throughout key areas of our business.
As you know our pharmacy is at the heart with our new strategy, which is designed to fundamentally change Rite aid school in health care.
As we reported at analyst day consumers visit Rite aid stores upwards of 25 to 30 times per year, and we believe there's a significant opportunity to leverage these interaction points to support consumers health plans and health care providers as a true partner a partner that helps guide and reinforce a more connected care journey.
As we continue working to bring this vision to life. It's Paramount we continue building momentum with our pharmacy business to lay the foundation for Rite Aid's Rx evolution.
In the fourth quarter, we continued seeing strong script count in critical service trends as we focus on providing an even higher level of care and engagement.
We delivered 5% growth in same store prescription count adjusted 30 day equivalents, driven by strong execution, notably in growing immunizations and medication adherence to personalize interventions as Louis prescription file buys and gaining access to new networks in markets, where we have a strong market presence.
This year, our pharmacist increased our number of flu shots by more than 300000 over last year for total of more than 2.6 billion.
We also significantly through ancillary immunizations by more than 500000 for the year, which pushed our total number of immunizations, including flu.
More than 4 million.
And of course, we continue to engage more customers through medication therapy management services with our results exceeding both last year and our plan for at White 20.
These positive results lay the groundwork as we build a more robust set of capabilities that supports the connected care experience and whole being health solutions that include prescriptions products and services.
As he word mentioned earlier revitalizing our retail and digital experience. He is key to providing the holistic connected experience that consumers want and expect.
On the retail side in Q4, we delivered crucial front end growth in a challenging environment, which is providing us with key go forward momentum in another critical area of our business.
Frontend comps were positive and when excluding cigarettes and tobacco front end same store sales grew by 1.5% with strong results in core categories, such as upper respiratory patient care and first aid.
We also saw strong growth in owned brand penetration, which increased 148 basis points to 20.69% quarter over quarter.
Owned brands will continue to be a critical priority as we launch additional better for you items to complement our focus on hold being held.
Heading forward, we continue to overhaul in cure rate Howard tire merchandise selection to fully complement the elevated health and wellness experience that will differentiate rite aid from our competition.
This new merchandising will be phased into all rite aid stores with our store of the future prototypes, taking it to an even higher level as we prepare to officially launch our new brand in the fall.
Speaking of our new brands last month, we unveiled our new Rite aid logo brand identity, and we're excited to be working towards our formal launch this fall.
As noted we conducted extensive quantitative and qualitative research to develop a fresh and fund brand resonates with the new target growth consumer millennial in Gen X women, who care for multi generational households, including pets.
As we work toward the lighting. These consumers were taking rapid steps to significantly enhance our digital experience.
Earlier this week after months of research development and testing, we soft launched our new website and mobile app with an entirely new look and feel and an enhanced consumer experience.
These new tools feature intuitive navigation more transparent rewards and loyalty benefits, but more user friendly online shopping cart prescription reminders for digital pharmacy accounts and more.
We will begin promoting this new site enough to consumers and just a few weeks and both will undoubtedly play a key role in creating a more personalized experience experience that are seamlessly connected throughout all touch points.
This launches of course, not a once in done but rather an early step in a digital journey that positions us to leapfrog our competition in delivering an omni channel experience never before seen in the retail pharmacy segment.
In Q4, our digital sales grew by 28% driven by digital refills, and we were focused on driving continued growth cutting forward.
And in light of the current environment its worthy to emphasize that we continued to strengthen our ecommerce capabilities to accelerate the growth we're already seeing.
We've made bold moves in line with our strategy to ramp up consumer experience in E. Commerce Cobot 19 accelerated the timeline for building these capabilities.
And solid execution on our strategy prior to cobot 19 positioned us well do fight through our unprecedented online demand spike.
For example, we were already transitioning to a structure that treats E commerce as a business not a cost center, we had already recruited the leader now runs this ecommerce business and overall consumer experience, an entrepreneur and digital retail executive who reports directly to me.
And while at the given that we have been battling through unprecedented online order volumes are people have responded well and with urgency and with strengths.
We are flatter and significantly more nimble company than when I came here just six months ago and as a nimble company. We've been short order ramped up E Commerce fulfillment, we've added capacity in our ecommerce distribution centers added workstations hired additional.
People increased technology bandwidth.
We've grown what feels like years' worth in months and are working hard to bring down or backlog and making progress.
And through all this we've handled this demand growth responsibly. In addition to associates safety measures, we've been active quantity limits reduced available assortments and transparently for worn customers to the best of our ability prolong ship times.
As I said earlier, our digital transformation will help fuel elevated omni channel experience, both in store and online which has taken on an even higher level of importance in light of decoded 19 crisis.
We have expanded self checkout to 260 stores with plans for an additional 400 locations and that's why 21.
Our prescription delivery and drive through capabilities continue to be meaningful options for our customers, especially during this crisis.
We recently expanded our pilot with Instacart and continue to explore additional convenient delivery options for our consumers purchasing merchandise from our stores.
In addition, we recently completed a successful pilot to pay and go to expedite prescription pick up both in store and that the drive.
We're now in the process of expanding this service across our store footprint with an expected completion date of April 30.
And we continue to pursue new capabilities for consumers to buy online pickup in store.
All of this is leading to a heightened consumer experience throughout all stores, particularly in store in our store of the future.
By default all Rite aid stores will feature improvements such as exterior cleanup, new signage merchandising changes refresh end caps and where needed gondola changes.
It's where our stored the future we will revolutionize our offering to features like wellness rooms, which will deliver localized full being health solutions.
Stigma free environment.
Before I turn it over I'm excited to continue our Rx evolution and we will continue pushing forward to bring this vision to life.
At the same time.
Our top priority is leading and supporting our teams. So that we can keep our associates safe healthy and ready to serve the customers in our communities.
I'd like to sincerely, thank our more than 50000 Rite aid associates for everything they do day in day out they continue to respond in heroic ways and are making sure that we can continue providing essential care services and products.
During this never before seen time.
Thank you and now I'd like to turn it over to Dan Robson for an update on helix.
Yeah. Thanks, Jim.
I've served as president of Envisionrx options.
They were mentioned seem to be elixir for four months now.
Our future continues to look right.
But before we talk about our key initiatives I think it's important to mention both immediate and future challenges presented by come at 19.
In regards to our business continuity to.
The business the company quickly implemented our pandemic response plan and I am proud to report that we encountered virtually no disruption to daily operations.
The team has really stepped up.
Moving forward, we will continue to keep a close eye on membership, especially our commercial employer business.
We have yet to see a measurable downturn.
That may change as clients are faced with economic decisions regarding the size of their workforce.
As we all know it's a challenging time for the country.
Now back to our key initiatives.
With each passing week, we made solid progress towards our objectives.
First and foremost we continue to build out our leadership team and after months of recruiting inventing candidates I am happy to report that our executive rosters, all but complete.
We have much work to do in the coming months in a seasoned forward thinking leadership team will take us down the right path.
As we talked about last month integration with elixir in between Elixir and Rite aid is a major initiative for 2020.
We've completed a comprehensive analysis of existing organizational structures and we are already taking steps to eliminate operational redundancy and unnecessary expense.
Throughout 2020, we will close the operational gaps between deal looks or companies and achieve tighter alignment with our parent company Rite aid.
Moving full steam ahead strategic investments in our technology infrastructure.
Product innovation as well as member experience.
These initiatives will clarify our value proposition to target markets and allow us to launch a more cohesive more focused go to market strategy as we roll into Q2.
And finally.
Hard at work preparing to implement our new name brand elixir.
We will run a we run a complete complex business.
A rollout like this takes time.
Our plan is to complete this rollout in 2020.
Now regarding fourth quarter performance.
The elixir team did a great job of delivering growth during the time of significant change.
Fourth quarter results were strong with an adjusted EBITDA increased by 12.6 million or 33.2% compared to the fourth quarter the prior year.
This increase was primarily driven by continued focus on improving margin.
Including our significant efforts to optimize our network strategy.
Revenue was favorable to prior year by $337.8 million were 23.1%.
This increase in revenue was primarily due to an increase of Medicare part D membership.
Medicare part D enrollment is up 39.2% year over year with a total year over year increase of approximately 244000 members.
In summary, we now have over 860000, Medicare part D members, including over 450000 Choosers.
Also at our Elixir pharmacy specialty revenues are up 20.2% year over year and mail order revenues are up 27.1% year over year.
Finally, the 2020 commercial selling season was strong having closed over 300000 new lives.
Which approximately three quarters, our health plan lives.
We've also secured renewals for many of our key clients.
Even with some losses that we consider outliers our membership retention rate is 90%.
Our position as a strong independent Midmarket PBM is resonating as an essential option in the marketplace for health plans health systems self insured employers in humans.
We have a strong pipeline for the 2021 commercial in 2022 health plan selling season.
Same time.
There may be clients and this pipeline who are inclined to stay with their incumbent PBM in this environment.
However, if this happens that would also mean that would elixir would have a higher retention rate.
Now with that.
I'll turn it over to Matt for some comments on Q4 financial performance.
Yes.
Thanks, Dan.
On this morning's call I will walk through our fourth quarter results.
Provide an update on the recent impacts of Cobot 19 on our business and review our fiscal 2021 guidance.
Revenues for the quarter were $5.7 billion, which were up approximately $348 million from the prior years fourth quarter.
Net loss for the quarter was $343.5 million or $6.43 per diluted share compared to $255.6 million or $4.83 per diluted share in last years fourth quarter.
The increase in our net loss is due mostly to higher income tax expense.
Actually offset by a $72.4 million LIFO credit in the current year compared to a LIFO charge of 4 million in the prior year.
Income tax expense was negatively impacted by 320.6 million dollar charge relating to an increase in evaluation allowance against our net deferred tax asset.
The increase to the valuation allowance was based on our most recent assessments that it is more likely to not that's sufficient taxable income will not be generated to realize the benefit of the net deferred tax asset.
Adjusted net loss in the current quarter was $19.9 million or 37 cents per diluted share versus adjusted net loss of $13.3 million or 25 cents per diluted share in the prior year quarter.
The increase in our adjusted net loss was due primarily to a current year loss on the sale of our 2019 CMS receivable compared to a gain on sale of assets in the prior year fourth quarter.
This was partially offset by an increase in adjusted EBITDA, which was 135.6 million in the current quarter compared to a 134.1 million in the prior year quarter.
Retail pharmacy segment revenue for the quarter was $4 billion, which was $22 million higher than last year's fourth quarter.
Our increase in retail pharmacy segment revenue was driven by an increase in same store sales, partially offset by a reduction in store count since the end of fiscal 2019.
Same store sales increased 160 basis points in the quarter.
Front end same store sales were up 150 basis points after excluding cigarette and tobacco sales.
Driven by strong results and core categories, such as upper respiratory Penkair and for state.
Pharmacy same store sales increased by 160 basis points.
Same store prescription count up 5% on a 30 day adjusted basis due to strong execution, notably in growing immunisations medication adherence through personalize interventions as well as prescription file buys in gaining access to new networks in markets, where we have strong mark.
Good presence.
Total retail pharmacy gross profit dollars into quarter were $83 million better than last year's fourth quarter and gross margin was 193 basis points better as a percent of revenues.
Retail pharmacy segment gross profit for the fourth quarter includes the LIFO credit I mentioned earlier, which resulted from deflation and generic drug cost, partially offset by brand drug inflation.
Adjusted EBITDA gross profit was favorable to last year's fourth quarter by $1.5 million and 11 basis points worse than prior year as a percent of revenues.
Our increasing adjusted EBITDA gross profit was driven by an improvement in pharmacy gross profit due to prescription growth, partially offset by lower reimbursement rates.
The improvement in pharmacy gross profit was partially offset by lower front end gross profit due to a decline in vendor promotional allowances.
Retail pharmacy segment as gene a expense for the quarter was $5 million higher and flat as a percent of revenues to last years fourth quarter.
Our adjusted EBITDA, SGN, eight was $12.6 million and 717 basis points worse than last year.
The increase in adjusted EBITDA SGN, a was driven primarily by reduced TSH fee income from Walgreens.
Our pharmacy services segment Elixir had revenues of 1.8 billion, which was an increase of 338 million or 23% due to an increase in our Medicare part D revenues as we continue to grow our membership.
Adjusted EBITDA for the Pharmacy services segment of $50.4 million was $12.6 million better than last year's fourth quarter adjusted EBITDA.
Pharmacy services segment adjusted EBITDA benefited from increased revenues and improvements in pharmacy network management.
Partially offset by increases in SGT expense related to our growth in Medicare part D lives.
Our cash flow statement for the quarter shows a source of cash from operating activities, a $417 million in the current year quarter compared to a use of cash from operating activities of $216 million in the prior year quarter.
The cash from operating activities in the quarter benefited from the sale of our calendar year 2019, Medicare part D receivable from CMS and the result of initiatives to reduce front end inventory.
Our debt balance net of cash was approximately $2.8 billion at the end of our fourth quarter and our pro forma leverage ratio was 5.3 times adjusted EBITDA, which takes into account the impact of proceeds from the sale of the remaining distribution center to Walgreens, which is expected to be completed.
Subsequent to year end.
As previously announced during the quarter, we completed an exchange of $600 million of our six in an 8% notes due April 2023% to 7.5% second lien secured notes due July of 2025, which improves our debt maturity profile.
Our liquidity a $2 billion at quarter end is very strong.
And with no debt maturing until 2023, we had the flexibility and runway to execute our strategic initiatives.
Before discussing our guidance for fiscal 2021.
Let me spend a few minutes, providing an update on how cobot 19 has impacted our business through the first several weeks of fiscal 2021.
We saw a significant increase in revenues during the month of March with same store front end sales increasing by 33%.
These increases were impacted by demand for general cleaning products, Sanitizers wipes paper products and Otcs items.
The demand has moderated in the first few weeks of April.
Same store script counts were 8.3% for the month of March driven by the acceleration of 90 days fills of maintenance prescriptions.
We view this as a timing items and expect this phenomenon to have a negative impact on script trends in April and May.
There is also risk that delay in elective medical procedures could have a negative short term impact on acute prescription fills.
The benefit that we have seen from increased sales has been largely offset by investments made related to covert 19. The Hayward described earlier, including pay adjustments restore and distribution center hourly associates.
Bonuses for store managers and pharmacists.
Increased charges to clean stores and other expense increases in related to our increased volume such as supply costs and credit and debit card fees.
Regarding supply chain, our current supply for the majority of our branded generic drugs is good.
However, we've seen increased demand for certain generic products, such as inhalers and hydrochloric win and are closely monitoring the supply of these and other generic products.
We've had issues in restocking for front end products with heavy demand similar to others in the industry.
We are working diligently if our supplier partners to get back in stock.
At Elixir, we've seen an increase in may order prescriptions and drug utilization, which has a favorable impact on the business.
Offsetting this is a negative impact of higher utilization on our medical loss ratio at Division insurance, our Medicare part D plan.
So far we've not seen negative changes in total membership for our PBM clients. However, there is a risk that extended layoffs could negatively impact PBM membership and related gross margin and we will continue to monitor this closely.
Our cash and liquidity position is very strong.
Current liquidity is $1.9 billion with the slight decline from the $2 billion a year end due to expected timing differences of receipts and payments.
We've had no issue accessing our revolving credit facility and out of an abundance of caution have drawn an additional $180 million on our revolving credit facility to holding cash during these uncertain times.
At this time the company does not have enough information about the ultimate impact of coated 19 on fiscal 2021 results to justify changing the fiscal 2021 guidance that we issued an on March 16th.
During our analyst day presentation.
It is important to note that the impacts of cobot 19 in our business, our fluid and difficult to predict and these estimates could materially change.
Factors that could cause our estimates for fiscal 2021 to materially change include a deterioration in front end sales and prescriptions due to prolong social dismissing measures a reduction in members at our pharmacy services segment commercial clients and disruptions to our front end ohr pharmaceutical.
Our supply chain.
Our guidance assumptions for the retail pharmacy segment reflects expectations for continue prescription count growth and continued reimbursement rate pressure, partially offset by generic drug cost savings and strong SGN expense control.
Our guidance for the Pharmacy services segment assumes sustained improvements in pharmacy network management and benefits from SGN a reduction in other integration activities and expense reduction initiatives.
Our guidance also assumes restructuring charges of approximately $60 million, which are not included in adjusted EBITDA.
These charges include the estimated cost to relaunch the rite aid and elixir brands as well as transitioning certain merchandise lines in the retail stores.
We expect total revenues to be between 22.5 billion and 22.9 billion, including PBM revenues of 6.75 billion to 6.85 billion.
We expect same store sales to be in a range of an increase of 1.5% to 2.5%.
We expect net loss to be between 91 million and 119 million and expect adjusted EBITDA.
To be between 500 million and $540 million.
We expect adjusted net income per share to be between a loss of 22 cents an income of 19 cents per share.
Our fiscal 2021 capital expenditures are expected to be $350 million. It will be concentrated on investments in technology or store rebranding initiatives and prescription file buys that will drive growth.
There's a risk that restrictions on construction activity and closures of local governmental permitting offices could delay our plans to roll out new science tourist stores and could impact the number of store the future Remodels that we perform in fiscal 2021. However, it's too early to update our guidance for capital expenditures.
Yeah.
This completes my portion of the presentation and with that we will now be opening the phone lines for your questions.
And if you didn't have a question press star one on your telephone keypad.
Your first question will come from the line of Robert Jones with Goldman Sachs. Please go ahead with your question.
Great. Thanks, Thanks for taking the questions.
Got you just talked about some of the strength you saw in.
In March in both front end and scripts, but I was hoping you could share maybe a little bit more with us on the type of comps that you're observing.
In the more recent weeks no end of March into the first couple of weeks of April I know you you mentioned it moderating but is there any more of a sense you can give us on the order of magnitude as far as what you saw in a way of a drop off as it relates to consumers changing behavior in the recent weeks.
Yes, yes.
I can't give you a precise numbers Bob what I would tell you is we're still seeing.
Positive front end comp trends.
Positive trends on front ended on script say, we are seeing in the last couple of weeks slightly negative trends as we see kind of the impact of that 90 accelerated 90 day Phil.
Kind of come back.
Well in all those lower acute medication because people aren't really going to the doctor right now.
Yep.
No Thats helpful. And then I guess, you know as it as it relates to the comments you made around generic drug purchasing savings not offsetting the expected reimbursement decline can you give me give us any more detail here are you seeing higher than expected generic pricing than what you had previously anticipated.
And I guess if that is the case could you maybe help us think through.
What's causing that how the disruptions in the system might be resulting in changing in the generic pricing market.
Yes, Bob I should clarify that really the comments around generic drug costs not completely offsetting reimbursement rate pressures are really in the context of when we initially set our guidance and just direct spectator ones that we're going to have reimbursement rate reductions in fiscal 2001 that are above and beyond the savings we would expect to get just soon.
On a general market conditions, I think it's too early to really determine whether or not anything with kobin 19 is going to have an impact on generic pricing.
Great I guess, just just one last follow if I could Hayward you mentioned the difference in acute and chronic.
Something that we've been getting questions on I mean is there anymore you can share there just as far as the trends you're seeing if you parsed out.
Folks getting chronic medications versus acute in both the pharmacy and also at the PBM.
Yeah, well actually this is that there we've seen a huge uptick in the PBM in terms of mail order for sure and we're seeing people are core stocking up on their 90 day medications, because they don't really want to be going back to the pharmacy.
Such because they're just worried about exposure surfing get 90 days in one trip through a drive through that's awesome and then.
People aren't doctors aren't open for business right now there's been a 40% I think that fine and primary care physician business and so people don't want to get to the emergency room right now and so we are seeing what I believe that the temporary decline in acute care. Most I think just picked up and our enough when markets start to open then.
Hello, really start to see its full impact.
So.
View is.
Potentially the temporary so maintenance medication do make up.
The majority of the script that we felt.
Okay, great and all that.
Bob I would just add to what Hayward said in just give you just a data point.
In March alone, we've seen about an 8.3% increase in 30 day comp adjusted script counts for those maintenance meds.
Let really by anti asthmatic cardiovascular and Hyperglycemic medications. So that just gives a data point, we don't rely on that much because it's a short window of time, but at least Directionally gives you a sense of the driver.
Appreciate that thank you.
Your next question comes from the line of Glen Santangelo with Guggenheim. Please go ahead with your question.
Oh, yes. Thanks for taking my question I just wanted to follow up quickly on on Bob's question regarding April if I heard you correctly it sounds like that even in the current environment Youre front store sales are still trending positive.
And I think you seem to suggest that scripts, maybe down a little bit, but that's due to an accelerated.
Adoption of 90 day scripts, maybe kind of implying that the current foot traffic is not down materially year over year, despite the social distancing guidelines.
Is that correct characterization.
Maybe this is Glenn maybe I can take that one.
So foot traffic, it's interesting the way we define it has changed right. So online traffic combined with in store traffic is different from just traditional in store traffic. So we've seen trips reduced with because of social distancing, but we've seen basket size increase so on the front end you see you've got the stockpiling effect early.
John.
But as Matt indicated or implied earlier, while we're not seeing the did the hyper growth that we saw end of February beginning of March we're still at levels that are certainly outpacing year over year on the front end.
Okay. Thanks, maybe like just as Matt a quick follow up on the balance sheet, a fair amount of debt restructuring over the past handful months. Some kind of curious is there more to go there and how do you think about the changes in the yield curve in the credit markets and how that may impact any sort of balance sheet restructuring going forward.
Yes, certainly there's more work to do glad we still have we've made a lot of progress in our 2023 maturities, but we still have a sizeable.
Bond maturity due in 2023 that that's going to be top of mind for us.
As we move throughout the year.
I think obviously with this disruption in the in the credit markets over the last month.
I think we've kind of taking a pause in some of our activities.
But certainly thinking hard about how we handle those 23 23 maturities and I think as a market stabilize.
We would want to try to it.
Handle that maturity sooner rather than later.
The lower rates be a benefit to you obviously.
I think I think lower rates could I think some of it depends quite honestly on what's what what's the appetite for.
Our.
Our credit versus like.
Versus investment grade credit I think initially in mid to late March the markets probably were relatively close for a credit profile like ours, but my guess is that starting to change in recent weeks, we'll take a harder look at it once we kind of.
Let us what things settle down here.
Okay. Thanks for the comments.
Your next your next question is from the line of Lisa Gill with JP Morgan. Please go ahead with your question.
Thanks, very much and thank you, Matt I, just want to start with your guidance for 2021 and anticipation around.
How this all plays out too in the current guidance are you looking at what you're seeing currently and saying, Okay. We think things are going to get better are you looking at this and say you lift through what happened back in late two to 2010 with the economic downturn clearly rite aid with an a completely different position then they are today from a liquidity standpoint, but are you making assumptions.
Within that guidance that we do see more of a prolonged economic downturn and.
That's what the potential impact to your business could be I, just want to understand kind of some of that puts and takes I never we talked about it on.
Roughly a month ago it at the analyst day, but I just want to better understand how you're thinking about an economic downturn.
You know lease I think there's a lot of ways. This could play out I think from the one thing I think we tried to be careful about in their language around guidance is given what we see no today.
So there wasn't a reason for us to change the guidance I still think theres a ton of uncertainty.
That could come from Cobot 19, I think were being pretty careful to try to let.
Investors noted there is that that uncertainty out there so.
I think in past recessionary environments, what I would tell you is that we would see some pressure on on front end comps you'd see scripts stay relatively stable.
On the PBM side, which we didn't have Bakken no eight I think there's the risk of loss of commercial membership somewhat offset by probably a potential for increases in Medicaid membership and we do have a sizable amount of Medicaid lives.
I think from a guidance standpoint, we've tried to take a snapshot of what is our best estimate of where where things stand today.
But.
Again, I think there's just a ton of undefined risk you're covered 19, and we tried to be pretty kind of candid about that in our release. That's helpful. And then just in an unrelated question.
You talked a little bit about tele health and talked about the potential impact from tell hub two things I just understand one.
Is it tele health relationship with that you have with an outside vendor and if so can you share with US who that is and then secondly, I think you may have been either Timur Hayward that made the comment around potential future opportunities with tele health and prescription volume what have you seen thus far with people utilizing tele health are they.
Then in turn having a prescription filled at rite aid are they coming through the drive through are they having it delivered to their home in some way I'm. Just wondering how you think about the future trends as tele medicine as I believe that that trend is here to stay.
Yes, thanks, Lisa it's as much and comment on that but I do want to just say that.
I think it's a bit early to know how how health is point too.
Reflect out into the medications into the stores, even though there has been telehealth activity in the path I think we're I think thats something thats about ahead of them you wanted to talk about our overall strategy.
Yes sure. Thanks.
Hi, Lisa yes.
The Tele health certainly I also believe we'll take a significantly increased role as we move forward and I think for all the obvious reasons. This cobot 19 crisis has pushed.
Regulators and otherwise and others to kind of expand their view of what pharmacists and nurse practitioners ought to be able to do through tele health.
It is too early to tell all I could say is that we took all of our nurse practitioners and we're early in sending them home.
As opposed to having them essentially be magnets for sick people coming into our stores and as we did that we very rapidly.
Stood up our own ready clinic at home line, which is which is tele health and we've done that with a.
With the current technology partner, which is Teladoc that we had we've had a technology relationship with in touch which was recently acquired by Teladoc and so.
Using that technology, and and others that we use to allow our own nurse practitioners to from the comforts of their own home and frankly for patients the comforts of their own homes be able to connect and we don't see any aberration as it relates 2% of those visits that result in scripts, but for us.
It's early days for Tele health, and we only expected to become a much stronger part of our offering.
Great. Thank you very much.
Your next question is from the line of Elizabeth Anderson with Evercore. Please go ahead with your question.
Hi, guys good morning to.
To to sort of minor question can you talk about.
The PBM Pharmacy network management improvement that you guys.
In the quarter.
Yes, yes.
Yes, Elizabeth this is Matt I think what we've seen as we've just been able to do better job of of.
Kind of managing the balance between the contractual.
Commitments that we had our clients and kind of how we manage rates on the on the retail side.
Okay. That's helpful.
One other things we've been saying is that pharmacists have been authorized to give covance test is that something that you guys are sort of contemplating.
Or.
Working so on your end.
Well were heavy heavy into the right now we've been a part of the White House have forced on this is Jim you want to give an update.
Yes, absolutely, we're working directly and have been working directly with the white house in HHS on establishing testing sites, we view ourselves as a kind of pilot partner a key pilot partner to to the government as they attempt to rollout a scalable model of testing. So we were part of the initial testing sites that we had a location.
Yes.
This week, we converted our original Philadelphia side note that up an additional three sites.
In Pennsylvania, using the new self testing model.
We have partnered with a number of vendors to provided and testing led by our pharmacist and you know our goal as part of the second wave of government driven testing is to stand up 25 of these sites in eight states and I think as importantly is all of what we have done I would say that perhaps the most substantial.
Well I think movement that we've seen as a result with Covance is rite aid being squarely at the table in policy shaping discussions that lead to things like expansion of our ability pharmacists ability to.
To to test.
One thing that is that we in some states, we actually do Lou and stress test and in those states, we're actually able to prescribed as well. So we do see and are really try to advocate for pharma vehicle to continue to be an extension of service delivery.
Even there.
Intense amount of consumer engagement, we think that Theres more services that we can provide.
In our retail pharmacy.
Got it thank you.
Your next question is from the line of George Hill with Deutsche Bank. Please go ahead with your question.
Yes, good morning, guys and thanks for taking the questions I guess my first is a little bit of a follow up on Bob's question regarding the generic drug pricing comments and I guess is the is what we should read between the lines. There is that most of the gross margin pressure as it comes from reimbursement will not have offsets. So we should just think of that the reimbursement pressure flowing all.
The way to the gross margin line.
Yes, George adding homeowner quite right I think most is a strong word.
I think we'll be able to offset some of the reimbursement rate pressure with generic drug savings, but certainly.
We won't be able to offset all of it.
Okay. That's helpful. And then maybe just talking about business mix I guess can you provide any color on the degree to which you guys over index to Medicaid now and I guess I would ask at what point is that mix need to shift to put the guidance for the year at risk score I think most of US we're expecting to see a sharp increase kind of as we go through the year as it relates.
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Medicaid enrollment versus commercial in the mix.
Yes, let me comment on that so this is for the PBM business.
And our PGM because there is.
Mixture of what we formerly called net track, where we formally called envision now all one PBM called.
And I think we're very fortunate.
We have a significant amount of our health plan business.
Isn't the medical business as well as we have a significant Medicare advantage business, along with our Medicare part D business.
Of course commercial business, which is heavily index.
Or public sector on labor.
As well as small brick business and so we feel that we have as much of an opportunity for upside as we do.
I have some risk on the commercial Margaret's business, just given the economy. So I don't know if that answers your question, but we do.
Anticipate the Medicaid will will expand.
Well at Hayward, that's great color I was actually thinking about it from the retail side, assuming that your margin prescription commercial was better than your margin prescriptive Medicaid.
So thinking about the pharmacy, yes, the payers.
Sure I'll, let him answer that.
Yes, so we probably already over index, a little bit to Medicaid compared to our competitors Georges given the markets that we're in and certainly.
I think there is probably some.
You know risks that mix could further move over to extend that is that you get people who are coming to.
Our getting laid off no longer have access to commercial insurance and now are taking advantage of Medicare Medicaid expansion Andrei CA.
I guess, so I would say that while Medicaid.
Scripts are.
Less margin and commercial that gap is maybe not as great. As you would think on an overall basis.
Okay. That's helpful. Thanks.
Your next question is from the line of William router.
Hi.
Yes.
Good morning, guys.
I was wondering if you are seeing any shortage moves in terms of pharmacy comps.
We're obviously interface thing a lot with with people and I was wondering if there any challenges there in terms of keeping their coffee.
Well actually I couldn't be more amazed and proud of our pharmacy.
A pharmacist have lower call out rates right now than they've ever had so these are.
Are there there on the ground there doing what they were trying to do and more importantly, what the purpose and admission of what they want to do we have had.
Just to an amazing response from our pharmacy team.
They're the ones that are also involved with our clinical teams doing are testing we have had not only no issues. We've just seen them show up like never before now I will say that in general.
We are in New York City were in California, where in Washington.
We're in Pennsylvania, where on the nation hotspot and we have been impacted mostly.
On the Tech and front end side in terms of quarantines and call out, but we have not had to close any stores.
Anything other than clean so it's been pretty remarkable.
That's great to hear and then with regard to the.
Elixir. Your commercialize you mentioned you've added 300000 gross lives it sounds like you're going to lose some.
You know what you expect them that number to be for for the 2020 season.
Matt do you want to comment, yes, I think for for the core basically for fiscal 2021. So for the season has already been done I think commercial is going to be.
When you take the lives that we've gotten versus a loss has ever cycling commercials, probably relatively flat and I would expect most of the growth in.
For calendar 2020 fiscal 2020 wanted to be in Med D.
Great I'll turn it to others. Thank you.
Thank you. Your next question comes from the line of Kuru Martinson with Jefferies. Please go ahead with your question.
Good morning, certainly very strong digital growth and Thats, just wondering where what percentage are we digital today and given the store base.
How do you feel that digital can grow in the near call. It six to 12 months.
Yes, Thanks group.
Yes. Thanks grew we started we started.
From a position of almost having virtually no digital ecommerce business on a relative basis to our revenues. So it's really inconsequential to even give a figure for that but I can tell you that weve never focused on it either.
Until recently over the past six months, it's become a high point of our of our strategy.
And we believe that because of our footprint, we're not rate limited by any means by the existing footprint because of course ecommerce can deliver product.
And in some cases service, we believe in the future to people regardless of whether they're in our core geographic footprint.
What I can tell you is that our revenue.
Has grown substantially over last year and again, our efforts to focus on growing that that that business.
Our only quite recently, so we view it as a core part of our strategy, we think it'll be a very good growth engine over time.
And we actually think we're very well positioned to do things in a way that.
We'll measure ourselves based on best in class ecommerce vendors not just those in retail pharmacy.
And then when you talked about the reset of the.
Online mobile App and everything else and the focus on the rewards members, it's been a while since.
Part of an update of where we stand on rewards members and how they're spending is relative to the rest of the customer base.
Sure.
We've been not only looking hard at our rewards program, but trying to solve for one of the challenges that we recognized several months ago, which is.
Because were a lot of people weren't aware of the real benefit they are getting from being in our rewards program. So we offer 20% plus.
For many of our wellness plus members and historically many of those members we learned weren't even aware that they're getting that benefit.
Conversely, they were very aware.
When they see kind of.
In a high low promotional pricing strategy that we've historically had.
Aware of those products that are priced higher sometimes on shelves.
To balance the great discounts that we actually give through the wellness plus so in any case.
You know, we're doing a very good job, maintaining our gold and silver members.
Our challenge is really to drive new households, and that's kind of where we focus like a laser and we've actually hired someone who's got strong experience working with other best in class.
We'll be programs on the retail side about four months ago, and we're making very strong progress there.
Okay, and just lastly.
When I look back at my notes from the Analyst Day, you know you talked about addressing the 2020 threes hopefully in the next 12 to 18 months, how should we square that with the handle sooner rather than later with the market's reopening comments.
I think I would square with you know if market conditions are right crew I'd like to be closer to 12 months in 18 months.
Okay. Thank you very much appreciate it.
Your next question is from the line of Bryan Hunt with Wells Fargo Securities. Please go ahead.
Thank you for your time and.
Alone cruise line of questioning when you when you look at the surge and same store sales in the front end you've seen over the last six weeks, let's call it.
How many opportunities did you have to sign up new customers and how many of those customers were unique.
Yes, I'll answer that we it's interesting when we look at our online. We we actually took measures as appropriately to ensure that we kept backlog under control at least as defined by the market under control metrics that are have come to.
Come to be realized through Colgate 19, and so one of those measures in controlling our online was to actually.
To focus on providing online order opportunities and restricting those opportunities to wellness plus members. So it was kind of one way that we were able to ensure that number one we can provide level of personalization too.
Our growing base of customers and also frankly restrict the orders until we got the backlog down to reasonable levels.
We did see a large influx of bronze shoppers.
Throughout this period and.
Those trends continue to to hold up.
And then how do you plan on like capturing that unique data and those those unique customers that you said have experienced rite aid over the last six weeks I mean, what's the plan to go back after that.
Well I mean look I think the step one is actually enrolling them get providing enough value and clarity around our loyalty program too.
To have them want to enroll Norway will see program and as I said earlier.
We've already design changes in our program is actually will be launching a refresh program.
Next year, but we're not just kind of turning on that Lytswitch next year, we've already begun to change it.
So the brands are already wellness, plus shoppers, who shop relatively in frequently. So this was really an opportunity to reengage them in ways that we probably wouldn't have.
Absent.
Kind of despite that we've seen with cobot.
And then my last question is it.
They were kind of your original hotspot.
And Washington State can you talk about any degree what's going on and with sales there.
Relative to the rest the rest of your geography, so thats. It for me. Thank you.
Yes, we're actively watching Washington state, because we consider them to be on the front of the.
Hi, why you're asking the question is that we see them as a leading indicator of what our license and I'd like in New York in California, and Pennsylvania ones.
Hi, Matt you want to comment on some of those not for.
Yes, Brian I would say that in Washington state, probably over the last week or so while we're still seeing.
Decent front end comps, there, we pricing a bit of as a little bit more of a slowdown.
Washington, compared to the activity that we're seeing in some of that or other hot spots not unsurprisingly.
We've also.
Think about life after.
After the pickup.
As as Matt in Hayward said, we do view that it's kind of a leading indicator to some degree.
As a result, I mentioned earlier in my remarks that we expanded our work with Instacart and that expansion actually started in the Pacific northwest with with Washington Arc in the cross hairs and we've already seen substantial pickup as result of store to home delivery.
Very good I'll hand, it off to somebody else. Thanks for your time.
We have time for one last question and your last question will come from the line of Carla Casella with JP Morgan go ahead.
Hi.
Just a couple of follow ups are you client you you commented on adding some people the stores.
Recall that in some bonus payments can you quantify any of the added.
Sleeve labor.
We'll see in 2021 and if this is something that permanent I permanent hires or are they in six months three months temporary higher looking at that.
Well the first thing I would say is that the hiring is really to shore up the store. So we can keep them open they open and we.
We will right size that.
Pass this on a market by market basis. It's also.
Keep our distribution center highly functional we don't anticipate that we will.
We'll keep our hiring tied to our volumes when the path when the peak issues path.
And then that you can comment on the pay and the timing of the pay.
Right. So we really there's two elements to the pay one is we had a temporary.
Increase in our wage rates for four.
Store and distribution center hourly associates that is going to at this point.
We would expect to to extend through sometime in may.
We also had a onetime bonus for form assistant store managers.
Those cost along with some of the other incremental costs I mentioned on on the call we expect to pretty much offset the sales benefit that we saw.
The in March So I think those are going to route largely offset each other at least from what we see to this point.
Obviously things could changes.
Spending on how things are covered 19 developed.
Okay, Great and then did you say how much you spent on tier say in the quarter and then how we should think about teeth. After 21 now that I think you've completed.
On some credit all the distributions and transfer slowing.
So I think we what we referenced was that we had $12 million increase in retail SG name pretty much all that was due to say.
In the fourth quarter 20 fiscal 2001, there will be very limited TSA income is.
In the order magnitude of maybe a million dollars.
Okay.
Just on the one other clarification, the pharmacy services business, along with a lot stronger in the quarter and you mentioned, adding a bunch of lives.
That's something that Choppier or do you actually see an increase in the quarter. There added and then it tails off or is that a good run rate under the new useful lives are covered lives sorry.
Yes, I I don't know if I want to.
I think you can probably look to some of the PBM revenue guidance for 21 to get an idea of kind of what we think for the overall.
Revenue increase in into PBM business I would tell you Karl at the Med D business, you basically have pretty decent idea, where youre going to be.
On January one and that's where a lot of that growth came in I mean, obviously utilization, particularly as it moves into some of the.
Mail order business is going to have an impact but.
You in Med D. You do a bid you get your lives into for January one and then number.
Stays relatively constant throughout the year.
Okay great.
And then just one clarification on some language you talked about me.
Prolong the coupon prescription decline in you do clarify bit that.
Just Kobe, then people stocking up but do you think theres any risks that you're losing.
Market shares to two pharmacies that has.
Is there further along on online distribution or other online distribution.
Yeah, Mike I'll start and when Hayward and Jim help me out, but I might have the comments around that were really more around kind of what we think it's going to happen in the marketplace as opposed to us thinking we're losing share.
Yes, yes, if anything we anticipate picking up share both and we have seen actually share we picked up share on front end and so Jim you can talk about pharmacy.
Yes, the same I would echo Matt comments, we were not at all implying a thing about share as much as we were just trying to outline the potential risk of you know doctors' offices remaining closed elective surgeries and procedures.
Continuing beyond.
Reasonable time period of being continued so it was more just additive abundance of caution that we wanted to at least highlight that as a potential but certainly no implication about share.
Great Thats really helpful. Thanks, so much.
And at this time I will turn the call back over to Hayward for any closing remarks.
Thank you thanks, everyone for your question before we end the call I just wanted to thank our team.
The cobot nights with crisis again, we've been hearing incredible stories about our frontline associates, showing care and concern for our customers on clients.
We currently is inspiring stories from all areas of our business, whether its rite aid elixir ready clinic.
Or health dialog all of the company.
I'd like to share one of these stories with you before we end the call.
Last week, we now care packages all of our associates, which include at hand, sanitizer vitamin C. support.
The coveted pay per product as well as I know the thanks and encourage Matt.
And we distributed to the doors to distribute to their associates.
And as you know hand, sanitizer, it's really hard to come by these days.
And at one of our stores and how long New Hampshire, there was a customer who was looking for hand sanitizer, but the store was out of stock in that moment as they fly right off the shelf.
In an incredible act of kind of Earth.
No one of our store associates.
The sanitizer from Kirk care kit and gave it to the customer to properly contacted our customer support team to let us know acts of kindness like this are happening throughout the world not to that Rite aid.
As our first responders on frontline worker support our community.
And it is tough time, I really encourage all of us to recognize and celebrate those acts of kindness, if we face.
So then the challenges together.
So that concludes today's call. Thanks for joining us and we'll talk again in June We report our Q1 results.
Thank you. Thank you again for joining today's call you may now disconnect.
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