Rite Aid Corporation

Good day. Thank you for standing by and welcome to Rite Aid Corporation Fiscal Year 2022 Quarter 1 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press a star 1 on your telephone. Please be advised that today's conference is being recorded. In addition, if you require any further assistance, Thank you. I would now like to hand the conference over to your speaker today, Mr. Trent Kruse. Sir, please go ahead.

All right. Thank you, Ludi, and good morning, everyone. We welcome you to our fiscal 2022 first quarter earnings conference call. On the call with me this morning are Hayward Donegan, Jim Peters, and Matt Schroeder. As we mentioned in our release, we're providing slides related to the material we will be discussing today. These slides are provided on our website at investors.rideaid.com. While management will not be speaking directly to the slides, these slides are meant to facilitate your review of the company's results and to be used as a reference document following the call. Before we start, I'd like to remind you that today's conference call includes certain forward-looking statements. These forward-looking statements are presented in the context of certain risks and uncertainties that can cause actual results to differ. These risks and uncertainties are described in our press release in item 1A of our most recent annual report on Form 10-K and in other documents that we file or furnish to the SEC. Also, we will be using certain non-GAAP measures in our release and in the accompanying slide. The definition of the non-GAAP measures, along with the reconciliation to the related GAAP measure, are described in our press release and slides. And with that, let me turn the call over to Hayward. Hayward?

Thanks, Trent. And good morning, everyone. I'm pleased with our results this quarter as we delivered on our guidance and continued our extraordinary efforts to vaccinate our nation against COVID-19. As a result of the dedication of our teams, I'm proud to say we exceeded our expectations and administered nearly 4.7 million COVID vaccines in the quarter. As of today, we have now provided over 6 million vaccines in total since we began administering the vaccine late last year. In support of the national goal of getting 70% of our nation their first shot by July 4th, we demonstrate great flexibility and continue to adapt throughout the quarter to address the evolving needs of the communities we serve. For example, we are now vaccinating individuals who are 12 and over. We also began accommodating walk-ins for COVID vaccines, helping to make getting a vaccine as convenient and accessible as possible. And we know we have a critical role to play in delivering real health equity. In order to ensure vaccines are getting to the people who need them, we reached out to people where they are. We went into our communities, partnering with local community and faith-based organizations. businesses, schools and jurisdictional partners like the departments of health, education and covered response to identify those areas of need and take quick action. We continue to conduct vaccine clinics also for our elixir employer and health plan customers. Through all of these partnerships, we conducted almost 1200 off site vaccine clinics where we administered nearly a quarter of a million covered vaccines during the quarter. This would not have been possible without the incredible efforts of all of our associates who clearly delivered what our communities needed us most. And we all began to return to some sense of normalcy. I want to take the time to recognize the efforts of all pharmacists across our nation and the rest of the healthcare field around the world for their heroic work to get us through this phase of the pandemic. So our results improved as we moved through the first quarter, and we started to see momentum in several areas of our business. Acute scripts grew nearly 3%, even excluding COVID vaccines. Although certain acute medication categories such as gastrointestinal and skin prep have recovered to pre-pandemic levels, we are still not fully recovered in most categories, and it's unclear when we will recover to normalized levels. So as an example, you know, California just officially fully reopened last week. So when you think about people going back to doctors and health systems opening and people getting prescriptions, that's an example of some of the challenges we face and why we're still uncertain. We also saw encouraging signs in our front-end business as customers were buying back in categories like cosmetics and seasonal, which are both important categories for us moving forward. We also saw strong sales during key holidays in the quarter, like Easter and Mother's Day, where we delivered better sell-through versus last year that drove improved margin, sales, and inventory turn results. It was exciting to see more customers in our stores, and we've been preparing for this, bolstering our supply chain to not only withstand the pandemic, but also stand ready to pivot to increase demand once customers are ready to resume their normal shopping habits. At Elixir, we progressed our efforts to integrate our back office functions and made key strategic investments in our team and company transformation. while continuing our work to enhance our product and go-to-market strategies. As I will discuss shortly, we still have critical work ahead of us to transform Elixir and drive future success. As for the quarter results overall, we grew our revenue 2.2% to $6.2 billion, improved inventory turns by 8% to three times, and that, I would note, is the best result we've seen in many years. and we generated adjusted EBITDA of 139 million, which was at the very top of our first quarter guidance range. We also paid down the remainder of our 2023 notes as we continue to enhance our financial flexibility to deliver on our RX evolution strategy. Not only did we execute well during the quarter, allowing us to deliver on guidance, we also continued to make significant progress on our strategy as we bring together and leverage our network of retail pharmacies, elixir, and health dialogue. Elevating our digital experience continues to be a top priority for us. We enhanced our unified commerce experience with the chain-wide launch of our partnership with DoorDash, which is off to a fast start and is already outperforming our initial expectations. Throughout the quarter and pandemic, we've been nimble to ensure we're meeting the needs of all customers. For example, we developed and launched a vaccine scheduling tool that will be leveraged to provide a seamless experience for customers as they schedule additional clinical services beyond COVID vaccines and COVID testing in our stores. We also progressed on the exterior refresh program, with now over 1,700 or 70% of our stores complete. In addition, this quarter, we opened seven new flagship stores, four of which opened in Boise, Idaho, and three in the Virginia Beach, Virginia market. This brings us up to 10 flagship stores open, and Jim will share more on what we're seeing and learning in this important work as it progresses. Looking across our entire footprint, customers are seeing fresh and exciting product offerings as we continue to improve our merchandising mix. We know our target customer values product attributes like green, organic, and better for you. And we're working hard to stock off shelves with products aligned to our whole health focus. In addition, our pharmacists are continuing to provide whole health support to our communities. Some examples include tip sheets and consultations on traditional and also alternative remedies. The integration of Bartels continues to progress as planned, with approximately half the stores converted to Rite Aid systems and processes, with the integration expected to be complete later this summer as planned. Maintaining the Bartels brand and overall customer experience has allowed us to continue to deliver the same great service that the loyal Bartels customers have always enjoyed. And we welcome their incredibly talented teams to Rite Aid. and today we published our third annual corporate sustainability report that illustrates the progress we've made across critical esg initiatives and lays out a new framework for our sustainability efforts focused around four key pillars these four pillars are one thriving planet two thriving business three thriving workplace and four thriving community We've made meaningful progress against each of these pillars, including diverting more than 50,000 tons of recyclable materials from landfills. And for the second year in a row, Rite Aid was recognized in the Who's Minding the Store retailer report card as the number one traditional drugstore chain as a result of our work to reduce or eliminate toxic chemicals from products sold. And at Rite Aid, our commitment to DEI starts at the top, with our overall board diversity at 89%, a female CEO, and a diverse leadership team serving as leading indicators of our clear commitment to this important topic. More to come. Now, let me say a few words about Elixir. As I mentioned last time we spoke, I'm now overseeing both Rite Aid and Elixir on a day-to-day basis. I've been digging in to better understand our strengths and the opportunities for improvement. While I'm highly encouraged by our talented team and the clear opportunity for growth we have at Elixir over the long term, we still have much work to do in order to best position ourselves for profitable growth. We're moving with great urgency to achieve the results we know we can and expect to deliver at Elixir. And as I've mentioned before, it will take time to achieve our full potential. We believe that Elixir provides a valuable offering to our target clients of regional health plans and mid-market employers. We will compete and win in these markets by leveraging the integrated offering of Elixir, Rite Aid, and Health Dialogue to provide clinical capabilities that will enable our clients to reduce their overall health care costs and improve health outcomes for their members to help them thrive. In order to maximize the benefits of our integrated offering, we will make investments in Elixir, including expanding our sales and underwriting teams, moving to a common operational and technology platform to drive efficiencies and improve member experience, and maximizing rebate value in order to provide better value to our clients. We are also enhancing our product offerings and operational capabilities. In fact, we are continuing our focus on putting forward Rite Aid anchored limited networks in relevant markets and customer-oriented health solutions with significant new clinical and analytic capabilities powered by Rite Aid and Health Dialogues. We're prioritizing new business opportunities in Rite Aid markets since this is where we can have our greatest impact on consumer engagement, cost reduction, and improved health outcomes. And we are refining our go-to-market strategies for all lines of business as we deliver integrated solutions, formulary flexibility, and real savings, all tailored to ensure maximum value to our clients and their members. In terms of the current sailing season, it's presenting more opportunities than last year, but it's still not as robust pre-COVID 2018 and 2019. We anticipate an additional increase in opportunities in next year's selling season, and the investments we're making now and our focus on enhancing our product offerings will enable us to win our fair share. Now, before passing it over to Jim, I want to make a few closing comments. As we are rapidly emerging from the pandemic, our teams remain clear on what needs to be done. when today and into the future by creating real healthcare value, improving consumer engagement, and transforming our work to improve financial performance. The pace of the recovery is very dynamic, and we continue to prepare and adapt to the changing needs of customers, and at the same time, focus on delivering strong results for our shareholders. And through it all, we will continue working together to deliver the operational excellence needed to achieve our objectives of generating free cash flow, reducing our debt, and improving our leverage ratio. Our focus on helping customers thrive validates our belief that as the trusted, everyday care connector, Rite Aid will drive lower health care costs through better coordination, stronger engagement, and personalized services that help our customers achieve whole health for life. And now I'll turn it over to Jim for some additional comments on our overall progress in the retail pharmacy segment. Jim?