September 17, 2015 / 11:28 AM / 4 years ago

Rite Aid cuts full-year forecasts citing lower reimbursements

(Reuters) - Drugstore chain operator Rite Aid Corp (RAD.N) cut its full-year forecasts for total earnings and drugstore sales, citing lower pharmacy reimbursements and expenses related to its $2 billion acquisition of pharmacy benefit manager EnvisionRx.

Rite Aid shares fell nearly 9 percent in morning trading on Thursday.

Rising generic drug prices are hurting drugstore operators as insurers and pharmacy benefit managers have been slow in raising reimbursement rates for those drugs.

“This is going to be a tough reimbursement rate year for us,” Chief Executive John Standley said on a conference call.

“I think the Part D marketplace probably continues to drive the whole marketplace as those (reimbursement) rates continue to come down over time,” he said.

Reimbursement rates for Medicare Part D drug plans, which

cover prescription drugs for senior citizens and the disabled, are falling due to growing competition to win these contracts.

Larger rival CVS Health Corp (CVS.N) estimated current-quarter profit below analysts’ expectations last month, also citing lower reimbursement rates.

Rite Aid said pharmacy same-store sales rose 2.8 percent in the second quarter, but growth was limited by the introduction of new generics, which offer lower margins.

Rite Aid cut its drugstore sales forecast for the year ending February to $26.7 billion-$27.0 billion from $26.9 billion-$27.4 billion.

The company also reduced its forecast for same-store sales growth to 1.5-2.5 percent from 2.5-4.5 percent, and earnings expectations to 12-19 cents per share from 14-22 cents.

Net income fell to $21.5 million, or 2 cents per share, in the second quarter ended Aug. 29, from $127.8 million, or 13 cents per share, a year earlier.

Profit was hurt by expenses related to the acquisition of EnvisionRx and a $33.2 million loss on debt repayment.

A Rite Aid logo is seen outside one of their stores in New York, April 11, 2013. REUTERS/Shannon Stapleton

Excluding a 2 cents loss on debt retirement, the company earned a profit of 4 cents per share, which came in line with analysts average estimate, according to Thomson Reuters I/B/E/S.

Revenue rose 17.5 percent to $7.66 billion, beating the average analyst estimate of $7.57 billion.

The company’s shares were down 8.6 percent at $7.85 on the New York Stock Exchange.

Reporting by Sruthi Ramakrishnan in Bengaluru, Editing by Don Sebastian and Anil D'Silva

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