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Rite Aid’s profit drops on lower pharmacy reimbursement rates

Inside Rite Aid Ahead of Earnings ReportsInside Rite Aid Ahead of Earnings Reports

Rite Aid’s fiscal first-quarter profit slid 54% as the drugstore retailer reported lower pharmacy reimbursement rates and higher salary and payroll expenses.

Those increased costs masked the retailer’s improved sales performance. Total revenue climbed 2.7% to $6.47 billion for the quarter ended May 31, boosted by a 3.1% increase in same-store sales.

Rite Aid’s (RAD) sales performance was stronger at the pharmacy counter, where same-store sales rose 4.6%. The number of prescriptions Rite Aid filled at those stores rose 2.3%. Meanwhile, at the front of the store–where Rite Aid sells food, beauty products and other discretionary items–sales were flat.

The drugstore chain, which is far smaller than rivals Walgreen (WAG) and CVS Caremark (CVS), has reported annual profits for two years after years of losses following a poorly timed acquisition of the Brooks and Eckerd chains in 2007. The company has reported higher sales, refinanced debt and cut costs, while also investing in store remodeling and expanding into new pharmacy services like immunizations.

Investors have praised the company’s turnaround story. Shares traded as low as about $1 at the end of 2012 but are above $7 today.

For the latest quarter, Rite Aid reported a profit of $41.4 million, or four cents a share, down from $89.7 million, or nine cents a share, a year earlier. Rite Aid earlier this month had projected it would report a profit of four cents a share in the latest period.

Rite Aid also confirmed its financial targets for the new fiscal year.