Rite Aid Gets Rocked After Cutting Drug Purchasing Efficiencies

Rite Aid Corp.  (RAD) shares were getting hammered Monday, Aug. 6, falling more than 10% to below $2 a share after the company revised its generic drug purchasing efficiencies down for fiscal 2019. 

"Based upon recent generic drug bid activity and on anticipated generic drug market conditions for the balance of the year, generic drug purchasing efficiencies are expected to be significantly below Rite Aid's previous experience and will not meet the company's expectations for the year," Rite Aid said in a press release

The revision was roughly $80 million lower than Rite Aid's initial estimate. Expected earnings have therefore been lowered to an adjusted net loss of anywhere between 4 cents a share share and break-even. Earnings were predicted previously at 2 cents to 6 cents a share.

Rite Aid's guidance for sales and capital expenditures were unchanged.

The downward revision is "is notably crushing to shareholders," Evercore ISI analyst Ross Muken wrote in a note to clients. He added, "Management had high hopes for purchasing efficiencies that frankly did not come to fruition and now the FY range is moving lower notably." 

The unfortunate news for Rite Aid might have some wondering what this means for CVS Health Corp.  (CVS) , which reports earnings on Wednesday, Aug. 8. Jefferies analyst Brian Tanquilit told TheStreet investors shouldn't be worried about CVS. "Generic pricing continues to go down, so I don't think that CVS has the same issues as Rite Aid," he said. Rite Aid buys generics from McKesson Corp.  (MCK) , and CVS buys from Cardinal Health Inc.  (CAH) .

The reduction in Rite Aid's purchasing power was also a result of Rite Aid's sale of many of its stores to Walgreens Boots Alliance Inc. WBA, Tanquilit said. "Rite Aid sold half its stores to Walgreens. When you do that, you have less purchasing power." He added "it's really a reduction in purchasing scale." 

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