The Camp Hill, Pa.-based company reported third-quarter net income of $104.8 million, or 10 cents a share, compared to $71.5 million, or 4 cents a share, in the year-ago quarter. Analysts were expecting earnings of 5 cents a share. Rite Aid's revenue rose 5.3% to $6.7 billion, also slightly above expectations.
Revenue was fueled by a 7.2% increase in pharmacy sales, vs. a 1.6% increase in sales of other merchandise, despite the 228 basis point negative impact from new generic drugs, according to the company. Rite Aid filled 4.5% more prescriptions compared to the prior year's period. The number of prescriptions filled in same stores increased 4.5% over the prior year period.
Importantly, after a quarter in which Rite Aid trimmed its profit guidance for the second time this year, the company on Thursday raised its fiscal 2015 outlook. It now expects 2015 EPS between 31 and 37 cents a share vs. analysts' expectations of 31 cents a share. Rite Aid expects sales to top $26 billion in fiscal 2015, based on same-store sales growth of between 3.75% and 4.25% for the year.
Shares were surging 12.4% to $6.81 with roughly 75 million shares changing hands at last check -- triple its three-month average daily trading volume. Here are some initial thoughts from analysts.
Edward Kelly, Credit Suisse (Outperform; $8 PT)
Rite Aid's Q3 beat and raise provides solid evidence that the company's visibility on its outlook is improving and its turnaround is once again moving in the right direction. Q3 EBITDA of $332.8 million beat consensus by $40 million and the $1.29 billion mid-point of new fiscal '15 guidance exceeded consensus by over $50 million. While a fair amount of the upside was due to the fact that Q2's $40 million inventory valuation benefit will no longer reverse in the back half, management's improved tone and the fact that the company raised underlying guidance suggest an inflection point in momentum given recent disappointments. Improved sales trends, the early benefits of the MCK partnership, and better front-end profitability seem to be the drivers of upside, despite the offset of continued reimbursement pressure. We continue to expect better fiscal 2016 results, as remodels drive better traffic, MCK benefits ramp, the generic wave picks up (especially with the eventual launch of Nexium), and overall industry script trends remain solid. Reimbursement rates remain the key offset and we expect another reset in January (which is typical), but believe the company's tailwinds can more than offset this issue. We continue to rate the stock Outperform and raised our target price to $8 from $7.