Q4 2021 Rite Aid Corp Earnings Call
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Hello, and thank you for attending by and welcome to Rite Aid Corporation full year 2021, Q4 earnings Conference call.
At this time participants are in a listen only mode and after the Speakers' presentation. There will be a question and answer session to ask a question. During this session you will need to cluster and one on your telephone keypad.
If you require any further assistance. Please press star zero and please be advised that today's conference is being recorded I would now like to turn the call over to your speaker today Trent Kruse from senior Vice President of Investor Relations and Treasury. Please go ahead.
Alright, Thank you Michelle and good morning, everyone. Welcome you to our fiscal 2020, one fourth quarter and full year earnings conference call on the call with me. This morning are Heyward Donigan, Jim Peters and Matt Schroeder.
As we mentioned in our release, we're providing slides related to the material we will be discussing today. These slides are provided on our website www dot rite aid dot com under the Investor Relations information tab, while management will not be speaking directly to the slides. These slides are meant to facilitate your review of the company's results and to be used as a reference document and following the call before we start I'd like to remind you that today.
This conference call includes 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.
These risks and uncertainties are described in our press release and items <unk> of our most recent annual report on form 10-K, and and other documents that we filed or furnished to the SEC.
Also we will be using certain non-GAAP measures and our release and and the accompanying slides the definition of the non-GAAP measures along with the reconciliation to the related GAAP measure are described in our press release and slides and with that let me turn the call over to Hayward and work.
Okay.
Thanks, Scott and good morning, everyone I, probably don't need to say this but this past year was truly a year like no other.
And as we began our fiscal year, we had only just heard rumbling about COVID-19, and we certainly didn't expect one year later, we'd be playing a crucial role and testing and Vaccinating Americans and an effort to and the unprecedented global health care pandemic.
And for all of our lives.
As we know it.
Our team for battling on the front line throughout the year Covid.
COVID-19, and enabled us to live our purpose of not only keeping our communities healthy so I could get some thriving.
So serving our customers has never been more challenging but if we've demonstrated we are really up for the path.
And the entire Rite aid team is honored to play an integral role and helping bring and and to this pandemic.
Before I discuss the quarterly results and some of our key accomplishments over the past year I, just want to pause and recognize all of our associates across the company I am so proud of the way our team has stepped up to help each other our customers and our communities together, we've not from many challenges with.
Have you put on that.
We served our communities and neighborhoods with unmatched determination hustle and spirit, we supported our team members and new and inspiring ways.
Pushed our strategy forward. Despite the incredible external challenges, we face and we will continue to focus on delivering value for all of our stakeholders.
It was also a year and which are art evolution strategy would want and how our strategy came to life throughout the year, but first a few headlines on the fourth quarter challenging due to Covid and.
And whether as we previewed a few weeks back a confluence of external factors impacted our performance.
We experienced and nearly 37% decline and cough cold and flu.
The resulting impact on margin.
Our high margin.
Laurie.
Mr.
And with of course.
Driven by everyone and continuing to mask up and also certainly from kids.
It's not being back socializing and school.
And we also experienced a greater than 14% decline and acute prescriptions, resulting from the continued impact of COVID-19 on the deferral of elective procedures.
And doctors visits etcetera.
But despite these external factors, we continued growing share and the fun and during the quarter drove a nearly 170% increase and digital sales and deliver that almost 4% increase in revenue.
We've seen share and revenue growth throughout the year and that gives us confidence and the overall plan and the numbers do not tell the whole story.
Over a year ago at our analyst day, we told you we would be a demonstrably different company within the next year and we have delivered on that profit, making substantial changes to position us for profitable growth.
We've redefined the role of the pharmacists are customers' expectations of them and even their daily workflows, we introduced gleaned from.
From time to further and neighbor enable their ability to proactively engage with customers and be whole health advocates.
Alright aid pharmacist received specialized training this year to qualify them and integrated pharmacy specialist.
We introduced the new Rite aid brand and showcase the company's focus on delivering whole health the per.
Perfect fusion of traditional medicine and alternative remedies.
We have implemented extensive changes to our merchandising, replacing thousands of products and adjusting our presentation standards to highlight the battery for free you characteristics that our growth target customer craves.
We refresh the exterior of over 200 Rite aid stores and launched and all new website and new mobile App.
We opened our first three flagship store Remodels and we continue to be pleased with both the sales and margin performance and the stores.
We completed the strategic acquisition of Barts health, and Seattle, which we identified as a key market for Rite aid.
We rebranded our pharmacy services segment elixir.
Taking all the move to crafted RF solutions for our target customer and we launched our exciting new member portal.
We refinanced and extended the maturity of a significant portion of our debt. While also executing on a number of sale leaseback opportunities to generate cash and and firm.
Our debt reduction efforts.
We continue to build an outstanding team and shifted our entire corporate team and call Center associates to remote without missing a beat.
We delivered new solutions, and innovative and meet customer needs for Covid testing and vaccine administration and the communities we serve.
And importantly, we supported our associates as they were in store same hours and it didn't close stores ever since the beginning of the pandemic, we associated we supported them and their families by providing numerous programs such as hero bonuses for our front line associates Pandemics.
Hey, administrative leave for associates and didn't feel comfortable coming to work day to health concern and expanded resources to assist associates with Australia created by the pandemic and we provided much needed assistance to thousands of associates to our Rite aid associate relief.
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We doubled down on our focus to support diversity equity and inclusion we hired a diversity leader and are developing a long term plan where.
We're proud of the leading diversity of our board and we're making good progress and increasing diversity across our team.
It's also critically important to us to ensure equity and vaccine administration.
And we're using that C D C vulnerability index price.
Archives underserved communities for COVID-19 testing and vaccine.
We've partnered with government and nonprofit leaders from local mayors and all the way up to the White house to support our efforts to keep communities healthy and thriving.
Such as COVID-19 vaccine clinic.
To date, we posted nearly 700 clinics across our footprint, which as noted before is and both urban and remote areas with highly high socially vulnerable index and.
And finally, we progressed, our ESG initiatives and performance through fleet fuel reduction decreased energy usage, and our continued management of toxic chemicals.
Now, let me provide and update on elixir.
As you know we've been working to integrate the rite aid and Alex and businesses and systems and processes as well as our management and.
And through this work we identified an opportunity to further streamline our management structure at all like there.
And as such I want to let you know that dialogue has left the company and I will now oversee both rite aid and elixir on a day to day basis.
And just.
Background. So you know I have extensive experience with the health plan business.
And I've been working with keeping them from my whole career my expertise will serve our electrical business well during this important time and our turnaround.
And now more than ever we're bullish on elixir and it's clear that the market wants a sophisticated scalable and nimble alternative.
Following our executive briefings with key benefit consultants last year, we're experiencing an increase and opportunities within our target segment.
In fact, we're seeing strong membership growth and our sales pipeline.
And have recently been awarded over 200000, New line with an annualized script count of over $6 million.
And Phil most decisions.
Pending and this current sales cycle.
The coming months will be very busy with both proposal and contract negotiations and implementation.
So the market is speaking very clearly to us and we must concentrate all our efforts towards capitalizing on this great opportunity.
Cause this and a number of existing team members and capable leaders and key areas like marketing and.
And the indications clinical and customer care are stepping up to help us win new business at all it so well.
We're also adding seasoned P b M leader and sales and account management and all.
All of these leaders know what our clients want.
And has been instrumental and our recent wins, we're going to give the elixir team every tool they need to win more business, we continue to improve on our operational and technology capability.
Pricing and our clinical products are very competitive and we will continue to employ every component of the rite aid enterprise too.
Keep pushing forward with market innovation and fact, we're focused on putting forward Rite aid anchored limited networks and relevant territories and customer oriented health solutions with significant clinical and analytic capabilities Howard now by Rite aid and health dialog.
This is a really exciting time at a lesser with many opportunities in front of us and so I'll be working very closely with the rite aid elixir and the health dialog team to ensure we're focused on our objective.
So before passing it over it and Tim I, just want to make a few closing comments.
While we've made much progress and the last year much work remains.
And so we look for fiscal year, 2020, two there remains significant uncertainty and limited visibility and the pace and magnitude of Covid recovery.
Such as seen in the recent spikes, we're currently dealing with and Michigan.
This could lead to a range of potential financial outcomes and our retail business.
Despite the short term challenges our teams are clear on what needs to be done when today and in the future by creating real health care value improving the consumer engagement and transforming our work to improve financial performance with these initiatives well underway, we're accelerating our actions.
Toward a more nimble and efficient and effective rite aid, we have and will continue to effectively manage through this crisis, while positioning our business for current and long term success.
We will continue to partner with the government and community leaders to ensure no communities that are left behind and the fight against COVID-19, and will likewise continued to provide fast effective and free COVID-19 testing and all of our drive through locations.
And as more doses become available we stand ready to ramp up per vaccine efforts to help bring and entered the pandemic.
Now none of this will be or has been easy, but I have faith and the leaders we've put in place as well as the front line associates, who have truly earned their stripes as hometown heroes throughout the pandemic and we'll continue to work together to deliver the operational I fall if you needed to achieve our objective.
Generating free cash flow, reducing our debt and improving our leverage ratio.
Important work lies ahead of us but.
We've made as a team and optimistic that we'll achieve our goals. So now I'll turn it over to Sam.
And some additional comments on our overall progress and the retail pharmacy segment Jim.
Thank you Heyward and.
A year full of challenges the fourth quarter was certainly no exception.
Ramping our efforts around COVID-19.
Vaccine administration.
And this effort is not only taking place within the four walls of our stores and say we mentioned we have continued to schedule hundreds and hundreds of off site clinics.
Through partnerships with government officials church leaders and community organizers to help meet the very real challenge and improving vaccine uptake and underserved communities.
We're doing all we can to maximize the number of share.
And continuing to deliver on our strategy.
Peer into our Rx evolution transfer.
Information and this year has shown.
Signs of real progress and validation of our strategy and we are encouraged that we are focused on the right opportunities looking ahead.
Just consider the critical work to truly unlock the value of our pharmacists.
We deeply believe that as we've said before that well before we even knew what COVID-19 from interest would be critical to the future.
Excessive rite aid and the health care system more broadly.
This conviction is come to life over this past year as our pharmacists have risen to become indispensable and our nation's effort to defeat Covid and keep its people safe.
Whether around our work to stand up and administered testing across all of our drive through locations.
Our pharmacist engaging with customers around the importance of alternative remedies.
The.
Herculean effort to administer that COVID-19 vaccine with speed agility and Grace. It is abundantly clear how critical rule pharmacists play in improving the health of people and the neighborhoods and communities we serve.
Serve.
We believe and have seen the pharmacist truly are the ultimate last mile connector and health care.
And we believe the key role pharmacist that played out and the national stage throughout this pandemic bodes well for our future that expands the scope and practice for pharmacists and ways to better support the overall healthcare system.
Access and trust have long been hallmarks of our pharmacists.
We will continue to emphasize the increasing menu of immunizations diagnostics and a wider spectrum of remedies that keep our customers thriving and between doctors visits.
Let me now and take a couple of minutes to provide the latest update around COVID-19 testing and vaccinations.
And as it pertains to testing we have recently extended our testing contract with health and human services.
We administered nearly one 9 million Covid tests and fiscal 2021 and continue to provide access to no charge PCR self swab pain free testing across all of our drive through locations.
We are offering free testing two individuals ages, four and up and providing same day appointment availability and most locations.
On the vaccine from.
We are proud and partner.
And the communities and neighborhoods, we serve and are truly embracing our role and helping in this pandemic.
We administered about 500000 and vaccines during Q4 and then.
Already administered over 2 million Covid vaccines, and the first quarter to date.
As we've been experiencing and acceleration of both the timing and the number of doses administered.
We are receiving doses of all three current FDA approved Covid vaccines, Pfizer Madonna and J&J from the federal government and are now eligible to vaccinate and all states and which we operate.
We are administering pulled and batching vaccines and the majority of our stores with room to expand volume and supply becomes available.
And then.
And perhaps most emblematic.
Of our team's hustle under the directive from the Baidu administration to prioritize educators during the month of March Rite aid provided more vaccinations to educators childcare workers and support staff and.
Any of the national pharmacies participating and the federal retail pharmacy partnerships.
Now looking at Q4, we face a historically soft cough cold and flu season that significantly impacted our results with acute scripts associated with cough cold and flu down over 40%.
And we were impacted by the February snow storms that disrupted our supply do you wanted to date results. We have seen acute script growth returned to positive levels and are seeing continued strength and maintenance prescriptions, leading to quarter to date increases on 30 day adjusted comp scripts.
Our neighborhood pharmacies continued to establish themselves as among the most trusted and accessible clinical touch points in their communities and we're excited to continue our efforts to truly unlock their full potential.
We're also continuing to make progress on our retail and digital experience efforts and bringing a revitalized rite aid to consumers.
Through our re merchandising initiatives, 75% of our categories have now been reset to our new elevated merchandising standards, which support <unk> and reflect on trend products that have the attributes are targeted growth consumer demands.
Results, so far and been very encouraging for the lines of merchandise that we focused on to appeal to this target growth customer with.
And with several categories categories like immunities sleep strength.
For natural pet are all.
Being double and even triple digit increases to prior year.
We continue.
That contained the attributes that our target growth consumer seeks organic non GMO cruelty free.
And eco friendly to name a few.
We introduced a number of terrific new national brands to our customers and fiscal 2021 include.
Including honest Baby Ali bears vital.
Proteins and for a pet lovers, the ever popular Blue Buffalo brand.
Our efforts enabled us to once again grow front and market share as measured by IRI and the areas, we operate in and for the fourth consecutive.
Schumer.
The work too.
Categories allowed us to deliver each.
102021 to approximate.
Similarly, three times, which is the best.
The best levels, we've seen and many many years.
This also led to an approximately.
These results are encouraging purging and we look to build on this.
Progress as we continue to enhance our offering and fiscal 2022 and beyond.
Another key merchandising opportunity for us and fiscal 2021.
$15 million or 2%.
While we grew owned brand sales penetration decreased slightly.
Slightly due mostly to a handful of large owned brand categories that were disproportionately down due to COVID-19.
Covid chiefly among them and dipped ice cream and the upper respiratory categories.
As we look to our own brand opportunities.
And indeed in fiscal 2022, we've made significant progress and our portfolio transformation initiatives.
Which will result in a completely new owned brand architecture, and enhanced quality standards and new package designs and allow us to deliver a fully refreshed own brand lineup. This year.
After launching over 300, new oil and brand items and fiscal 2021, and our new product pipeline is well underway with nearly 200 more new items and development already.
We have also continued to bring our new Rite aid corporate brand identity to life across our fleet and store signage and pylons, featuring our new branding and we expect to complete our exterior refresh program. This year.
This is truly critical work.
Clearly signals to the communities that we serve there is indeed, a whole new rite aid and may need to come and check.
Okay.
We also continued to make meaningful steps by opening our fourth and fifth flagship store Remodels and March located in Virginia Beach, and Meridian, Ohio custom.
Customer feedback to all of our pilot flagship stores continues to be overwhelmingly positive and we are seeing margin meaningfully outperforming the rest of the stores and their respective region.
Beauty health and personal care categories are performing particularly well and east.
And we have noted before we will continue.
And I need to upgrade our entire fleet using a test and learn approach.
One that is analytical and methanol and methodical that in a way that guides the type of investment the level of investment and the timing of investment on a market by market and store by store basis.
Beyond brick and mortar we continued to push forward with initiatives to enhance the digital experience in ways never before seen at Rite aid.
And Q4, we saw strong sales growth across our digital channels with front end digital revenue was up approximately 170% compared to the prior year period and up over 180.
And redesigned website and mobile app.
Which now showcases our new brand.
And and deliver and enhanced user experience, but also our partnerships with Amazon for own brand sales and <unk> and post mates for home delivery.
Customers utilizing our new delivery services, demonstrating the enhanced relationship.
We have with these digital consumers.
Our investment and scheduling pickup and fulfillment services positions us healthcare and retail by now.
Enabling us to meet our customers where.
They are.
We expect these investments to have a continued halo effect across the rest of our business, attracting new customers driving bigger baskets.
So this work across our retail business.
And this has allowed us to achieve our highest ever customer satisfaction scores of three points.
In closing.
This certainly has been a very challenging yet.
And very rewarding years for our associates and I cannot thank our team for the past year.
And sprinting America working.
Tirelessly with hustle and humility to best serve our communities.
We are encouraged.
Furnished by the underlying positive signs that our strategy is taking hold while COVID-19 and the related historically soft peak.
The flu season has had an outsized impact on our own.
And whole health merchandise and life begins to return to normal.
We are confident and our strategy. The results. We are currently seeing and energized by our efforts and our accelerated administration of Covid vaccines.
And we look forward to continuing to drive progress and our key strategic initiatives and we are embracing our critical role and helping to bring the COVID-19 pandemic too and it.
Thank you so much and with that I'll now turn it over to Matt for some comments and our financial performance Matt.
Thanks, Jim and good morning, everyone.
As we stated in our March 24th release.
Our fourth quarter did not meet our expectations due to the soft cough cold and flu season.
The impact of Covid on acute script levels, and SG&A expenses and the impact of weather in February.
So our supply chain.
However, first challenging we made progress and a number of areas.
Over the past fiscal year.
We increased revenues and both the retail and pharmacy services segment.
Even with pandemic influenced acute.
Script declines of 9%, we still managed to have a positive comparable script count growth on a 30 day adjusted basis for the year.
We completed moving almost all of our bond debt out to 2025 and beyond and.
And in the next few weeks, we plan on paying off the remaining $91 million of our six seven and 8% 2023 bonds.
Availability under our revolving credit facility.
We grew market share and both the front end and pharmacy and a highly competitive environment.
We completed our acquisition of <unk> drugs solidifying our leadership position in the Seattle market.
And finally, we ended the year with over $1 7 billion and liquidity.
Which gives us ample flexibility and runway to execute our strategic initiatives.
Our adjusted EBITDA for fiscal 2021 was $438 million.
And while we benefited in the first quarter of the fiscal year from increased demand for certain front end products and and the back half of the year from demand for Covid testing.
<unk> had a negative impact on our results due.
Due to the year over year decline and acute scripts of 9%.
The 37% decline and cough cold and flu related sales and the front end sales and the fourth quarter.
Increased SG&A costs related to hero pay adjustments hero bonuses increased cleaning pandemic pay and supplies.
And in and increase in medical loss ratio and Elixir insurance, which was partially caused by additional costs from member stockpiling maintenance prescriptions.
Now I'll review, our fourth quarter results in more detail.
Revenues for the quarter were up $190 million or three 3% from the prior year's fourth quarter driven by the inclusion of revenues from the bar sales stores and an increase and <unk> revenues.
Fourth quarter net loss was $18 $5 million of <unk> 34 per share compared to last year's fourth quarter net loss from continuing operations of $343 5 million.
And were $6 43 per share.
Recall that income tax expense and the prior year's fourth quarter was impacted by a $321 million charge related to an increase and evaluation allowance against the company's deferred tax asset.
Current year's results benefited from a $48 million bargain purchase gain on our acquisition of <unk> as.
And as well as the net gain on the sale of assets of $52 million, resulting primarily from the sale leaseback of our Lancaster and woodland distribution centers that we completed in the fourth quarter.
Fourth quarter, adjusted EBITDA was $41 3 million.
Compared to last year's fourth quarter, adjusted EBITDA of $135 6 million.
Now, let's discuss the key drivers of operating results and our business segments.
Retail pharmacy segment revenue for the quarter was $4 1 billion.
Which was $121 million higher than last year's fourth quarter due primarily to the acquisition of Bartell drug.
Retail pharmacy same store sales decreased 30 basis points with same store prescription count down 90 basis points due to and over 14% reduction and acute prescriptions.
And same store sales, excluding cigarettes, and tobacco products decreased 5%.
The decline and front end same store sales was driven by the decline and cough cold and flu related categories and difficult weather conditions.
Fourth quarter, adjusted EBITDA was $6 million or 2% of revenues.
Compared to last year's fourth quarter, adjusted EBITDA of $85 2 million or two one percentage of revenues.
A decline and adjusted EBITDA was largely due to the soft cough cold and flu season, COVID-19 impacts and the challenging weather conditions that we detailed in our March 24th release.
I'll now shift to our pharmacy services segment elixir.
For the fourth quarter Elixir saw revenues increased to $69 million or three 8% to $1 9 billion.
Due primarily to changes and member mix and benefit packages and Medicare part D revenue with the new calendar year.
Elixirs fourth quarter, adjusted EBITDA was $35 $2 million or one 9% of revenues versus last year's fourth quarter, adjusted EBITDA of $54 million or two 8% of revenues.
The decline and adjusted EBITDA is due to a decrease in gross profit associated with contract renewals on our small group business going.
Going forward, we expect margins to stabilize across the book of business, along with membership growth and target segments.
I'll now turn to our cash flows and balance sheet.
Our cash flow statement for the quarter shows a source of cash from operating activities of $359 million.
We generated positive cash flow from the sale of the remainder of our calendar 2020 CMS receivable.
And through a reduction and inventory levels, driven by our working capital efficiency initiatives.
Cash used in investing activities was $63 8 million for the quarter.
The purchase of Bartell used net cash of $86 million we.
We completed a sale leaseback of our Lancaster and woodland distribution centers as well as a few additional store sale leaseback transactions that generated total proceeds of $89 million and the quarter.
We continue to explore additional sale leaseback options on those stores, where we see attractive cost of funds to generate cash to pay down debt.
Our net debt balance was approximately $2 9 billion at the end of our fiscal year.
Although our leverage ratio was not as low as we would like it to be due to the reduction in EBITDA, we remain committed to reducing debt and our goal of a leverage ratio and the four times range.
Now, let's turn to guidance.
Pandemic will continue to have an impact on several external factors and fiscal 2022.
These factors include the amount of individuals' that receipt and receive a COVID-19 vaccine demand.
Demand for Covid testing.
Timing and extent to which electric procedures increase to pre pandemic levels.
The demand per flu and other immunizations and the length and severity of this year's cough cold and flu season.
Due to the wide range of outcomes that could result from these factors. The company is currently only providing guidance for its first quarter of fiscal 2022.
Our results for the first quarter of fiscal 2022 will be significantly impacted by the amount of COVID-19 vaccination diminished during the quarter and the related impact on revenues gross profit and expenses.
With the high end of our first quarter guidance based upon the assumption that our COVID-19 vaccine activity for the remainder of the quarter will be consistent with what we have seen quarter to date.
Also included in our guidance assumptions are a meaningful reduction in front and sales compared to last year's pandemic driven surge.
And continued deferral of elective procedures and the related impact on acute scripts.
We also expect continued reimbursement rate pressure at retail.
And our returnable extra EBITDA, it's a recent run rate levels due to good network management and expense control initiatives.
Total revenues are expected to be between $6 $1 billion and $6 $3 billion in the first quarter with retail pharmacy segment same store sales expected to range from a decline of 9% to a decline of 7% over.
Over the first quarter of fiscal 2021.
Net income or loss is expected to be between a loss of $10 million and income of $10 million.
And adjusted EBITDA for the quarter is expected to be between $115 million and $140 million.
In addition, I want to provide some annual direction on a few key metrics.
Capital expenditures are expected to be approximately $300 million with continued focus on investments and digital star.
Sure and models and file buys.
Interest expense is projected to be approximately $200 million.
And we expect to generate a working capital benefit of $100 million from further inventory reductions.
I hope this information is useful.
And we plan to provide further updates on our expectations as the year progresses.
In closing we began fiscal 2022 with.
With our newly branded and integrated PVM poised to take full advantage of its large and growing addressable market and.
And enhanced store footprint and merchandise assortment.
More than 6400 pharmacists at our whole health advisors, serving their communities and and incredible and energized team.
We are ready to pursue the numerous growth opportunities. We have ahead of us across both of our segments.
This completes our prepared remarks, and we're now ready to open the phone lines for your questions.
Okay. Thank you at this time, if anybody would like to ask a question. Please press star one on your telephone keypad.
Your first question comes from George Hill from Deutsche Bank. Your line is open.
Hey, good morning, guys and thanks for taking the question and.
Thanks for all the color, Matt you started to talk a little bit about the expectations for the vaccine and I guess could you talk I guess could you provide any numbers around the expectations for the vaccine contribution and the fiscal first quarter and maybe about how youre thinking about it for the year.
And.
I think a question, but a lot of investors are asking right now at least as it relates to your fiscal <unk> is is like is that going to be key taxeme. I guess is the way to think about it and and I have a follow up.
Yes, so Matt.
Sure. So George I think try to pick off these in and no particular, xactly, what the amount and trajectory of.
Ultimate vaccine numbers are going to be which is one of the reasons, we havent given full year guidance.
And I do think it's a reasonable expectation that we would do more vaccines and the first quarter than we would do and any other quarter for the rest of the year, but some of that.
It is largely things are out of our control based upon just the pace and supply.
I think kind of the ever changing goals with the administration to get people vaccinated, but having said that I think it's our expectation at this point the Q1 is the highest.
Vaccine quarter as I said and my comments I think our guidance is kind of.
No.
Based around a range of outcomes that contemplates at the high and would be that we continue on the same pace for the rest of this quarter that we've had and the first part of the quarter.
And I think as far as contribution.
These vaccines, obviously provide benefit to the bottom line I think.
Roughly comparable to two to script benefits, it's a bit of a moving target to figure that out as well because there are costs that are incremental to giving these vaccines and they can vary even based upon the type of vaccine that we're giving whether it's pfizer madera and our J&J.
The labor cost can vary based upon the model and there is also costs related to advertising supplies, even cost and schedule.
To.
And the standup of scheduling system and other types of things so.
A lot of kind of moving pieces, George and and again one of the reasons that we're we're not giving full year guidance, just yet, but hope to answer some of your questions.
Also also George.
We are counting on the supply chain to produce these vaccines Unfortunately and.
Fortunately for us and day, but Fortunately I guess for US we are feeling that much J&J administration, but you can see we're primarily doing pfizer and mature enough that you can see how a disruption in supply chain could really affect us so and we are seeing and disruption in the supply chain. So.
To some degree at the range and also depending on the supply chain and continue to ramp up.
Okay.
Yes, yes, I'll say that was super helpful and the follow up and Hayward and it was kind of like talking about the other side of the vaccine and maybe could you talk about what I would call it the front and attachment rate or the basket size of the customers, who are coming and for the vaccine and talk about any initiatives. The company is taking to kind of use the vaccine and opportunity as a way to increase customer stickiness and engagement.
Well, it's super exciting identical stores that are going vaccines, and it's super exciting to see the customers come out of the consultation.
And are they are cheering and their euphoric and.
And of this basket.
And I get around the store and buy candy and Easter and Easter Basket line chocolate ice cream so wonderful.
Wonderful.
And going back to life again and.
I'll, let Tim comment on the splits.
Perfect.
Yes, Thanks Heyward George.
Really interesting about 75% of the folks that are coming to rite aid for a vaccine or action.
Actually net new to Rite aid these or not.
And by and large our existing customers. So we know many of them are driving quite long distances to receive the vaccine others are not but we may see them and.
And our a different location. So we're taking advantage of the as we can and new Rite aid experience any of these people who hadn't been where rite aid stores.
Or had been blown away by the by the noticeable changes.
And that day.
Not seeing it.
Child, a five year old child since they were to the parent doesn't always noticed that growth, but man when you come and see a person that has grown three years and that age timeframe. It's similar to the impact that it had on this particular individuals who had been to a rite aid years ago and was blown away by the new Rite aid that they saw with new merchandise are.
Storefront and new brand identity that cleanly.
And this at the store the service levels that we engage and and we and the size with our front end and pharmacy associated so.
And they have been buying more products and areas like beauty and candy ingredient cards, where we have not seen strong results from last year. So that's encouraging and we believe it demonstrates that our customers are starting to feel a real sense of returning to normalcy and hopefully beginning to get back to regular activities.
We are absolutely setting up merchandise.
Displays for our customers.
And really focusing in on the types of products that would complement.
Vaccination like the Covid vaccine like setting up displays associated with pain relief.
And and immunity and those types of things. So we have seen the tally and our large clinic stores for obvious reasons.
And we are engaging digitally and ways that consider the 75% as brand new greenfield opportunities for new long term rite aid customers and doing all we can to think and continue to engage with our existing 25 per cent that we see.
That's super helpful. Thanks, guys I'll hop back in the queue.
And your next question will come from Glen Santangelo from Guggenheim. Your line is open.
Yeah. Thanks for taking my question.
Hey, I just wanted to follow up on George's vaccine question I think what we're all kind of struggling with it based on your guidance midway through the quarter you already.
Contributing 2 million vaccines, so based on that current trajectory and we'll have about 4 million vaccines distributed and this fiscal first quarter and.
And based on the revenue per vaccine that people are talking about whether it's maybe not 40 bucks, but maybe blended average something at least close to that would be profitable and so I guess from people wanting to try and understand is when you look at your <unk> adjusted EBITDA guidance of 100, <unk> hundred 15 and 100.
40 million and if we assume some reasonable contribution from vaccines and we kind of imply but the adjusted EBITDA on the core is a reasonable chunk below that EBITDA guidance range and so we're just trying to think about that.
As it relates to the full year given that the vaccine benefit is likely to be transient.
Hopefully that makes sense and other a lot of moving from I think you know I think obviously the first quarter.
<unk>.
And we hope we will have that.
And you'd pay off of the vaccine on the current trajectory.
And yet on the other hand, we do we have seen what happened with the and so we have to be what I'll call cautious and cautiously optimistic, but we have to be cautious because it's.
Something happened with them that there are enough per client next week.
And that would significantly impact our ability to deliver on those numbers. So that's why we're being cautious and the first quarter.
The reality is as you go through the year.
We still believe that and the June July timeframe.
<unk> holds up and as you go through the year people will have been vaccinated and just didn't want to be vaccinated.
And.
So one would assume that there will be a slowdown of some significance.
And the fall and not only the question I get to do that.
Day actually.
True vaccination four hits understood fully under 18, depending on the vaccine.
They do not you know.
And you could argue that maybe there is.
And it turns into like a flu shot and kind of episodic event.
I don't know if that answers your question and selling Max and downtown but I think that that's kind of the way we're thinking about it.
Okay.
And I would add a couple other things to that and.
I would focus on a couple of other points. Besides just the vaccine gross margin contribution and first of all to our cost and distributing and he's as I laid out.
And both my comments and.
And commentary to George.
So I think the other thing to keep in mind is that kind of underneath the vaccine and benefit in the first quarter, which is going to be substantial is we're still having.
Weak cough cold and flu results, which is.
Is does bleed over into the first quarter and we are still seeing pressure and acute scripts because of people continuing to differ doctors' visits and elective procedures and things like that so I think we got this dynamic going on right and that's the part that.
I think makes it a little hard to kind of parse through the pieces and the first quarter and part of honestly. The reason why we're not giving guidance for the full year. There is a still a wide range of outcomes kind of put upon our retail business.
And it is ultimately resolved themselves.
Okay. Okay. Thanks for the comments.
The strength comes from Robert joins challenge from Goldman Sachs. Your line is from propane.
And this is Kevin on for Bob This morning, and thanks for taking the questions.
And just wanted to ask one quick on testing. If there was anything you details you guys give us about what the economics might look like on testing right now how youre thinking about the EBITDA contribution that that could have to fiscal <unk> and just more broadly how you've seen test volume trend just as of late and the vaccines and the enrollment.
Thanks.
Yes.
Let's start with the last part.
And then I'll turn it over to Matt on the numbers.
And it's been very unpredictable just like everything else. So if there's one word that is the theme of our last year and this year. It's unpredictable at one point we were.
In testing volume drop off remarkably fast because I think people just got tired of COVID-19 and they have gotten through the holidays and didn't feel particularly at risk and now all of a sudden and you know you've seen and is there an hour and Michigan is.
And bad shape and flow testing is going up again, so again, it's just really cyclical and highly unpredictable right now we're seeing a spike, but Matt and you could talk about the economics, and then any future predictions.
Yes.
Ill jump on and say that there are.
Testing brings deposits benefited the bottom line we haven't.
Gone into quantifying what that benefit is I would say it's.
It's a benefit it's not anything nearly as sizable as <unk>.
Some of the impacts that we've talked about.
That way and upon our guidance, but it does have a.
A positive impact for us and I think it's something that.
Over time, as we develop kind of institutional muscle to do this I think it could be.
It's something that is a net positive for us and the longer term.
And even after the contract and the HHS ultimately expires.
Got it that's helpful and then just one.
Level.
And I don't think I would just say I think I would think of testing and the future not now but in the future as like flu testing.
It will be something that I think will continue to be in and everyone's Arsenal for the rest of our lifetime just not at these volume slightly.
No that makes sense and then just one other one one of your competitors recently called out accelerated generic deflation and the market.
I was just curious what you guys have been seeing as it relates to generic pricing if youre seeing something similar and if theres anything in particular that might be driving that.
Yes.
Matt.
I would say we've seen some generic deflation and the marketplace I think it's theirs.
And the retail carving out like specialty drugs.
Out of this and if you're really not been a lot of.
And our new generic introductions and impact retail and so therefore.
I think that puts pricing on the overall generic book.
We'd say, we've got that kind of baked into our guidance.
For the year, but.
I think what we've seen some deflation in the marketplace as well.
Okay. Thanks.
And your next question will come from Lisa Gill from Jpmorgan. Your line is open.
Hey, good morning, it's Mike <unk> on for Lisa Thanks for taking the questions. So first just wondering if you could talk about how the pandemic may have impacted some of your key longer term turnaround initiatives and has there been any delay in those initiatives just given the near term focus on vaccine administration and testing and if we look back to the analyst day last March you'd laid out some longer term targets for fiscal 'twenty three should we think of that.
And those targets still remaining impact at this point.
Everything is on track I mean, I think that's one of the most remarkable thing that I, even kind of reflect on I can't believe is that we have executed on every strategic initiatives that we.
Set ourselves up for back at analyst day over a year ago. So it starts with the rebranding of both elixir and.
Rite aid, which is complete.
And the only thing that there is a complete on our rebranding is that we haven't finished all of the exterior rebrand, but we're halfway through the fleet, which I think is.
Pretty remarkable and and another itself because you can imagine how hard it was COVID-19 permitting and construction and the middle of a pandemic and.
And we are halfway through 2004 hundred store fleet. So.
We have executed completely on our merchandising strategy.
Actually we've changed out a significant amount of our merchandise.
And we have now.
Eliminated all of that inventory that wasn't timing wasn't relevant to our target customer and.
And.
Not only how can we execute on our.
Re merchandising, it's resulted in a 25% increase and inventory per arm.
With this recent all time high and also a significant reduction.
Two are.
Working capital tied to inventory, we have opened our new flagship store.
As we committed to do and.
And those stores were showing pharmacy growth of over 300 bps higher than the rest of the fluids and the reason and finance and sales growth of nearly 400, that's higher than the rest of the stores and the region. All of this while improving overall customer satisfaction and market share. We've also executed on the.
Cost savings initiatives that we committed to both.
But also on the initiatives of integrating both rite aid and elixir.
And if its network there and significant savings generated and then of course.
Acquisition of Bartels.
Is it.
Well underway and progressing better than plan and I guess I would say so I think there's a lot of noise and the pandemic, but the fact that we've been able to do all of that.
In addition to.
Launching COVID-19 testing and keeping our stores clean and.
Protecting our associates and our customers and getting people fascinated.
And quite a quite a year.
And Matt I do.
Everything that we had set out to do.
Yes, Mike its Matt I would say is as far as the long term financial targets. Obviously those were pre pandemic a whole lot has happened. Since then I think that the assumptions underlying long term growth can be seen in this company.
Potential we've seen this company has not changed but.
Given that we're not even given full year guidance for 'twenty, two yet I think.
No.
We probably need to wait till we get.
And kind of more on the <unk> type of pandemic impacts before we.
Take take a turn and a specific long term assumptions, but I think we still see a lot of growth opportunity and both sides of the business.
Got it that's helpful. And then maybe just a follow up question on the <unk> business can you talk about what youre seeing as far as for the selling season into calendar 'twenty. Two starts and then maybe provide some color and the comment around the lower gross profit and the small group business has there been any sort of shift and the model there or is there something else unique that's driving that headwind.
We.
A couple of things first of all we do.
And we have a very robust small business, formerly known as net track.
And frankly that business was.
Gary and still remains very profitable.
We need to make sure that we maintain those crucial customers and did execute on.
Competitive.
Pricing and that market did impact our.
Results for the quarter, but was a crucial step and ensuring the continued.
The competitive nature of our positioning and that business, so that that consider that kind of a one time.
And one time and effort to ensure that we retain and a competitive environment those key client.
Target segment and of course.
And the mid market and government and regional health plan. So we are really focused on maintaining and growing our small group business as a key profit lever, but it's not our core focus of future growth and the business.
In terms of membership so.
<unk>, a very very strong pipeline right now with significant increased membership opportunity and used for the one 122.
Calendar year, 'twenty, two sales cycle, where and the very beginning of that sales cycle. We did this.
And as we've already sold 200000.
<unk>.
Live with 6 million script and this is.
And the sales cycle is essentially got darden because most of these decisions get made in July.
July August timeframe. So the fact that we're seeing a 30% increase and the membership and our pipeline with a material increase of our target customers and the pipeline is a big difference from last year and we're very bullish about this and excited about this because I think next year will even be.
<unk>.
And the momentum.
So it's still early days, but really positive signs.
Got it and I appreciate the comments thanks.
And next question will come from Elizabeth Anderson from Evercore. Your line is open.
Hi, guys. Thanks, so much for the question I don't think moving.
And you could talk about any impact you're potentially seeing some and Ethernet and in the fourth quarter and the first quarter.
From the stimulus checks and anything that you have seen from like I mentioned 19 opportunity.
The results so far.
Yes.
And I'll turn that to Ian.
There is an interesting dynamic we did see spike.
Associated with the timing of the stimulus checks and we do think that that is at play for at least a short period of time, but overall I think the trends we're seeing on the front and are those that we've described earlier so continued pressure.
But improvement in areas that we saw struggle in Q4. So I think there is a dynamic at play but.
They're episodic as are those stimulus checks.
Got it and how long what styles from.
And you can think about like as you progressed and the ear, you honestly point, Ed and guiding.
Guiding just to the first quarter and because of the Embolic County, and and all the different moving back and well. Thank you and you can see on your side to have set as a longer term and perhaps potentially provide full FY 'twenty two diamond.
Yes.
Good question and this is gonna be a play by ear kind of thing for sure Matt and you could point to some of the day.
Areas stabilizing.
Yes.
Sure sure and.
I think it's a couple of things really kind of three things in my model is that one is really getting a sense of what the.
And the vaccine kind of supply it looks like and the trajectory and how long it takes for.
This first round.
Vaccinations to to <unk>.
And which I think we'll have better line of sight to here and a couple of months I think the other two pieces that are maybe a little bit more unpredictable is just what point too.
Aid does two two acute strips kind of stabilize and we get the sense that people are starting to go to the doctor and have elected procedures and put off things and they are deferring and what does that impact look like and and the other thing is that's probably the longest term pole and the Tam but.
We have to keep our eyes on is.
What.
And what kind of behavior change has happened and the way people Act and what kind of influences that have on cough cold and flu.
I think those are really in my mind three of the biggest questions that drive quite.
Quite a bit of uncertainty around the retail business.
Okay perfect that's super helpful. Thanks.
And your next question will come from Ken and Jane Elliott from Goldman Sachs. Your line is open.
Hi, there thanks for getting in and.
And it's just time and a high level. When you think about the game day and in Astrazeneca and unit and he's seen any.
Line, and perhaps and vaccine resistant and and really how you go about.
Matching and supply.
Supply and the appellate body with net.
Demand how does it work.
And there you're running into situations, where you are sitting on excess supply at the end of the day.
Given that there's only limited shelf life and the product and I'm curious how you come about.
Managing demand thanks.
Tim.
Well.
And we may not have enough time for that and.
And I'll just described it's been the most complex logistical challenge since World War two.
That all said, we and we've really hit our stride.
And of like being shot out of a cannon.
We hit our stride very quickly.
We were not the early adopters of Pfizer because many of the concerns around kind of refrigeration and freezing.
But we've really learned how to adapt to that and how to make it work and.
Up until recently, we were limited to.
Moving.
Vaccines only within jurisdiction and Thats.
A lot of that has begun to change at least and the dialogue and so it will become easier and easier as time goes on we really have found a way to particularly with Pfizer, we focus a lot on large mass clinics, when I say math it doesn't necessarily mean offsite and many of them are actually and our stores.
And with Madonna, we tend to embedded directly we didnt workflow, but.
And it's been it's been a challenge, but one that we've managed.
I think as well as any if not better. So we're I'm very proud of the way that our team has managed what you've highlighted is a really really complex set of variables.
Yeah, it's really interesting and I appreciate the color.
And just adding another line and separately and then.
And the supply chain disruptions that you saw in the corner and just curious if the EBITDA impact more so in the form of perhaps net now or instantly from kind of markdowns and mitigating inventory late or is that something that we might see linger into <unk> is there any inventory or margin impact we can see from the supply chain it's Rob.
And thank you.
Matt.
Yes, John I would say, it's a combination of some impacts on sales and margin, but that it was something that was really isolated to February and do not expect any lingering impacts.
From from what we saw and February into into the first quarter.
Okay Awesome, and then actually just finally, I'm kind of brands and I know, you mentioned and as the and growth opportunity and they're trending well have you said before and just remind us.
Anything and where they can go over time and your brands and it just smaller in scale, but the opportunity there and huntsman.
And once again margin pickup that youre seeing on those types of accounts and thats. It from me.
A couple of things.
And with and then let Jim answer we are engaging and a wholesale transformation of our own.
And brands, we are coming up with new brands, new names, new packaging across pretty much the entire owned brand enterprise. So sun setting those brands that are in the store right now that our own brand and coming up with new price.
Moving market tested brands with with packaging that is going to be appealing to our target customer for free.
We're excited about back to all of that Rolling out this year and addition to launching on brands and Bartow.
And Jim can talk to you specifically, but this is a very very big opportunity for us.
Yes, it's a really exciting opportunity for us and it's interesting if you look at the past year.
Well, let me first address specifically your question, we have and the past talked about increasing penetration of owned brands 23%.
Over the next several years. So we had said that about a year ago now that was before COVID-19 and what we saw over the past year is owned brands. Despite as I mentioned and my comments big.
Big hedged on brands like our ice cream.
Our hand at dice Scream, as well as cough cold and flu, which is a big oil and brands category, we still managed to actually grow on brands on an absolute dollar basis from a penetration standpoint, there was no way during COVID-19 that our own brands could keep pace with things like hand, Sanitizers and lysol and those types of products. So.
Penetration came down as a result in many ways of two things what I've, just mentioned, which was outbid just being outpaced by these kind of stock up items and household necessities during COVID-19 as well as certain limitations with some of the supply associated.
Covid COVID-19 impacted supply issues with a few of our own brand vendors.
Thanks, so much.
And your next question will come from volume.
Rosa from Bank of America, and your line is open.
Good morning.
So there were some earlier questions about the math around the revenues.
Related to the vaccine, but what are you doing or what are you seeing in terms of additional staffing needs additional cost anything you can provide there that might help us once we do the gross margin math that might help us with the ultimate EBITDA impact.
Matt Thank you.
Yes.
Yeah, Matt, Yes, Hey, good morning, Bill Yes.
And we walk through some of the pieces around.
You know the incremental labor cost supplies advertising.
Behind the scenes cost to kind of build a scheduling system I think they can vary based upon.
And the type of vaccine, we're doing and the way we are administering it whether it's a whether it's a clinic.
Clinic or and in store or whatnot, So I think.
Trying to get a specific cost per shop number is is it still a little fluid to probably give that number out.
Again, I would say that we are.
And that.
These vaccines from kind of total EBITDA contribution compare I would say I.
I would.
Probably on the high level math day, they're comparable to two a script, maybe a little bit better than the normal scripts, but there are some costs significant costs that go against.
That margin number on the top.
Right. Okay, and then just one more you mentioned reimbursement rate pressure. This year, how does the pressure youre seeing this share compared to previous years and is there any way that you can quantify what the impact on pharmacy margin is.
A bad year, many a year, where youre seeing a lot of reimbursement rate pressures versus a year, where the pressures are more modest.
Yeah, I would say and this is very general Bill.
Wind the clock back Q3, or four years ago, when we were in.
And acquisition Limbo, we had years, where we saw reimbursement rate pressure.
And several hundred million dollars that number has come down it's still.
A number and it gives you a headwind to margin that you have to deal with but I think it's kind of.
Come back to a.
And a number that's probably more reasonable but.
But still.
It was a significant number before you start applying generic cost savings and the work that our purchasing team does against that.
Okay I'll pass to others. Thank you.
We have time for one final question and that question will come from Karen <unk> from Jefferies. Your line is open.
Good morning.
Little bit surprised by the volatility.
Profit and Alex or with the contract renewals certainly understand the shift from from Medtronic, and and getting that and but when you talk about gross profit stabilizing and the book of the business is that the new wins that you've gotten to date given the sales cycle has begun.
And when do you expect that kind of return to the run rate.
Matt why don't you.
I'll take that one sure. Good morning crew, yes, I would expect the return and the run rate.
Pretty pretty quickly I mean, we made these adjustments and the book based upon competitive pressure.
Two to resize this period, but I think with the opportunities that we have and elixir.
<unk> continued to do a good job and network management continued focus on expense control.
I think that will offset the hits we've taken on some of this margin and the book of business and I expect a return to kind of what I would call normal EBIT.
EBITDA run rate levels for elixir, starting this quarter.
And I think it's both and I say.
This thing book of business as well.
We're still benefiting and are seeing benefit from increased membership.
And then benefit from our network management, and we're seeing benefits.
You know on a weekly basis and total cost of running the business. So.
And there's more at work here and then just pricing and we believe we'll start to really materially demonstrate this during the year.
Of course, beginning next year as well and we are also competitive and all good.
So we're able to drive margin and be more competitive that's what I think.
So exciting for us.
Just on the acute scripts.
Can you talk to like what the differences youre seeing in terms of the recovery and markets that have been opened versus say a market like California, where we don't officially fully open until June.
Dan and you want to take that.
Yes.
I would say, we're not seeing anything unusual on a market by market and in other words, it's kind of what you would expect based on how things are trending within that market Covid in particular.
<unk> seen overall and have been encouraged just over the recent weeks of the way in which acute even if you take out the COVID-19 vaccine have been.
Kind of returning and actually showing quite positive numbers relative to.
Just the weeks and months and certainly year that preceded it.
And again still seeing improvement we've seen it in March we're seeing and April more and more so just over the more and more recent weeks and.
Again, with so much uncertainty and it's tied to COVID-19 in many ways. It really is a one of the main driving reasons why you heard Matt and us talk about and Hayward that we're not providing that full year guidance at this time.
Per the other thing I would add is if you look at our map, we're largely and markets that have had some levels probably more levels of restrictions overall than than the nation and large we're not in some of the markets, which had been kind of less locked down I guess is the way I would say it.
Okay and then just lastly, just given the sale leaseback of the two Dcs and what's left in terms of your portfolio of owned properties.
We have a couple.
D C that we still own or frankly older Dcs and so I think the market for those is probably a little less robust and the ones that we sold but we also have about 100 stores.
And that we own and I think have the ability to do sale leasebacks on and I think the.
And we're going to be judicious about how we approach the market with those stores and make sure that we get.
And good economics to the extent that we do sale leasebacks on those.
Thank you very much guys I appreciate it.
Thank you.
This brings us to the end of our Q&A session today, I turn the call back over to.
Jonathan for closing remarks.
Thank you thanks, everyone for your questions.
And it was really appreciate it and before we end the call I'd like to extend one last big Thank you and not only to our team.
But all of the health care workers first responders caregivers frontline workers grocery workers for all that everyone has done and to keep us safe cause here and.
And that.
All of the rest of the talents and the third year communities with China and capacity under really brutal circumstances.
And we just can't thank everyone enough for their tireless efforts over the past year and as we move forward. We are so eager to help our customer achieve for.
And for life.
The day that mainly in vaccines and get back to your lives.
The family and go to dinner type trip throw a big party hunger grandchildren, or anything else that brings us back to normal.
And so sell side it can be a part of bringing things back to normal and thank you all for joining us and we look forward to updating you on our progress during our net.
Quarterly earnings call.
Thank you everyone. This will conclude today's conference call you may now disconnect.