* Fourth consecutive quarterly profit, margins rise
* Raises full-year earnings forecast
* Benefit from generic drug sales seen slowing in second
* Shares rise 20 percent, highest in more than 5 years
(Adds analyst comment, details; updates share movement)
By Maria Ajit Thomas
Sept 19 Rite Aid Corp, the No. 3
drugstore chain in the United States, reported a surprise
quarterly profit after generic drug sales boosted margins,
sending its shares up by a fifth to their highest in more than
Like rivals Walgreen Co and CVS Caremark Corp
, Rite Aid has benefited in the last year from a new wave
of generic drugs that have replaced more costly blockbusters.
The company's latest quarterly profit was its fourth in a row.
While stores earn less from selling generic medications,
margins tend to improve as they are cheaper than drugs such as
Lipitor, a cholesterol medication, and blood thinner Plavix -
the patents on which have expired in the last two years.
Though this cycle is coming to an end, and the cost of
generic drugs has begun to increase as the number of suppliers
has fallen, Rite Aid raised its profit forecast for the fiscal
year that ends in February 2014.
The company attributed the higher forecast to its
better-than-expected performance in the first half of its fiscal
year. It expects to earn 18 to 27 cents per share in fiscal
2014, compared with an earlier forecast of 4 to 19 cents.
"The cycle is negative for the next three quarters and that
is simply because you had record generic conversions last year
with Lipitor and Plavix," said John Ransom, analyst at Raymond
"But starting in the middle of next year, the cycle is
pretty healthy again," he said, referring to the next wave of
patents that will expire.
Rite Aid also expects to benefit from the remodeling of some
of its 4,600 stores and various loyalty programs. Chief
Executive John Standley said the Obama administration's new
healthcare law could also be good for business.
"There are several million households in the areas where
Rite Aid does business that will benefit from new or expanded
health insurance coverage under the provisions of the Affordable
Care Act," Standley said on a post-earnings conference call.
Rite Aid's gross margins rose to 28.93 percent in the second
quarter ended Aug. 31, from 27.45 percent a year earlier.
Net income was $32.8 million, or 3 cents per share. Analysts
on average had forecast a loss of 4 cents per
This fiscal year, Rite Aid expects same-store sales to be
reasonably flat. The company raised the lower end of its
full-year revenue forecast to $25.1 billion from $24.9 billion,
with the upper end unchanged at $25.3 billion.
Shares of Rite Aid jumped 20 percent to $4.47 in afternoon
trading on the New York Stock Exchange.
(Additional reporting by Jessica Wohl in Chicago; Editing by
Joyjeet Das, Kirti Pandey and Robin Paxton)