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UPDATE 2-Rite Aid cuts profit forecast again; shares drop 16 pct
September 18, 2014 / 1:17 PM / 3 years ago

UPDATE 2-Rite Aid cuts profit forecast again; shares drop 16 pct

(Adds management comments, details on performance, updates shares)

By Ramkumar Iyer and Nandita Bose

Sept 18 (Reuters) - Rite Aid Corp cut its full-year profit forecast for the second time in about three months due to lower margins in its pharmacy business, sending its shares down more than 16 percent.

The No. 3 U.S. drugstore chain said on Thursday that same-store sales and margins in the pharmacy business are expected to fall in the second half of its fiscal year due to a cut in insurance reimbursement rates and manufacturing delays on new generic versions of drugs that have lost exclusivity.

“We expect pharmacy gross margins in the second half to be lower than previous (company) estimates,” John Standley, the chairman and chief executive officer, said on a conference call after quarterly earnings were released.

He said a delay in the launch of the generic equivalent of AstraZeneca Plc’s heartburn drug Nexium and lower margins from newer generic drugs will have an impact on the company’s performance in the second half.

Rite Aid, which also sells over-the-counter medications, personal care items, and food and beverages, said the pharmacy business accounted for nearly 70 percent of total sales in the last financial year.

For drugstore chains, generics generate lower revenue but higher profit than branded medicines. The introduction of generics has slowed in the past few months.

Rival Walgreen Co in June reported a lower-than-expected quarterly profit due to the generics slowdown as well as lower reimbursements by insurers.

Rite Aid, which operates 4,572 stores in the United States, cut its profit forecast for the year ending Feb. 28 to 22 cents to 33 cents per share, from 30 cents to 40 cents.

The company also cut the top end of its sales forecast to $26.3 billion from $26.5 billion. The low end remained at $26 billion, its forecast in April.

Analysts, on average, expect a full-year profit of 34 cents per share on revenue of $26.30 billion, according to Thomson Reuters I/B/E/S.

Net income attributable to shareholders quadrupled to $129.2 million in the second quarter ended Aug. 30, helped by a 3.7 percent increase in the number of prescriptions filled in stores open for at least a year as well as cost savings from a drug purchase and delivery deal with McKesson Corp.

The company earned 13 cents per share in the quarter, compared with 3 cents per share, a year earlier.

Same-store sales in the quarter rose 4.1 percent, while net sales rose 4 percent to $6.52 billion.

Analysts, on average, expected 6 cents on revenue of $6.49 billion, according to Thomson Reuters I/B/E/S.

The company’s shares fell 16.6 percent at $5.54. (Reporting by Ramkumar Iyer in Bangalore and Nandita Bose in Chicago; Editing by Savio D‘Souza, Maju Samuel and Jeffrey Benkoe)

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