As Rite Aid executives campaign to win over skeptical shareholders for their merger with grocery store chain Albertsons, the drugstore chain Wednesday reported deteriorating retail pharmacy sales in its fiscal first quarter.
Rite Aid reported fiscal first quarter profits of $214 million, or 20 cents per share thanks to the sale of more than 200 stores to Walgreens Boots Alliance during the period. Rite Aid, however, reported a net loss on continuing operations of $41.7 million of the period ended June 2. Revenues were essentially flat at $5.4 billion compared to the year ago quarter as sales in Rite Aid’s retail pharmacy segment fell during the 13-week quarter.
Rite Aid’s first quarter earnings report came on a day when its proposed merger with Albertsons was dealt a blow by a large shareholder. Highfields Capital Management, which holds 4.4% of Rite Aid’s outstanding shares said it will vote against the merger with Albertsons. A vote is scheduled for Aug. 9.
Before shareholders is a $24 billion merger with grocery store giant Albertsons announced in February that would result in Rite Aid shareholders owning about 30% of the combined new company. The combination of Rite Aid, which operates RediClinic, and Albertsons would create a company with 319 health clinics and 4,345 pharmacies after the merger closes.
Some investors have said they are upset that senior executives will be paid retention bonuses even if the deal falls through. Others don’t like that Rite Aid isn’t getting a higher price, especially as pharmacy benefit managers are suddenly an acquisition target and shareholders see value in Rite Aid’s PBM, EnvisionRxOptions, which has been growing rapidly.
“In Highfields’ estimation, the proposed transaction is in the best interests of Albertsons and Rite Aid management, but not Rite Aid shareholders,” the Boston-based investment management firm said in a press release issued Wednesday.
Meanwhile, Rite Aid management is fighting back against opponents. In a letter to shareholders earlier this week, Rite Aid included supporting quotes from analysts and media clippings pointing out the potential threat of online retailer Amazon as well as a warning from one firm highlighted in bold that they “do not expect any other bidders” for Rite Aid.
During a conference call Wednesday afternoon, Rite Aid CEO John Standley said the retail pharmacy segment is improving and the merger with Albertsons will “create a truly differentiated leader in food, health and wellness.”
“This combination will enhance our scale and density to better compete in existing markets, give us access to new markets, significantly improve our omni-channel capabilities and create the opportunity to achieve substantial cost synergies and revenue growth, all of which will strengthen our financial profile and position us to deliver compelling long-term value for customers and shareholders,” Standley said on the 50-minute earnings call.
With the transfer of more than 1,900 stores to Walgreens Boots Alliance completed, Rite Aid executives have said they can now focus on the merger with Albertsons and growing its businesses. In particular, Rite Aid said it will continue to convert its drugstores to “wellness stores,” which have expanded clinical pharmacy services, health and wellness products.
On Wednesday, Walgreens reported a first quarter “after-tax gain of approximately $268.6 million relating to the sale of 281 stores to Walgreens, which completed the sale of stores and related assets to WBA.”
“As a result of the proceeds received from the store sales, Rite Aid’s debt, net of cash, was $3.0 billion as of June 2, 2018,” Rite Aid said in a statement.
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