Matt Schroeder - Group VP, Strategy, IR and Treasurer John Standley - Chairman and CEO Ken Martindale - President and COO Darren Karst - EVP and CFO

George Hill - Deutsche Bank Robert Jones - Goldman Sachs John Heinbockel - Guggenheim Securities Ross Muken - Evercore ISI Bryan Hunt - Wells Fargo Securities Lisa Gill - JPMorgan Mark Wiltamuth - Jefferies Steven Valiquette - UBS John Ransom - Raymond James

Good morning. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rite Aid Fiscal 2015 Fourth Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you, I will now turn the call over to Matt Schroeder, please go ahead, sir.

Thank you, Christy, and good morning, everyone. We welcome you to our fourth quarter conference call. On the call with me are John Standley, our Chairman and Chief Executive Officer; Ken Martindale, our President and Chief Operating Officer; and Darren Karst, our Chief Financial Officer. On today's call, John will give an overview of our fourth quarter results and discuss our business. Ken will give an update on some of our key initiatives. Darren will discuss the key financial highlights and fiscal 2016 outlook and then we will take questions. As we mentioned in our release, we are providing slides related to the material we will be discussing today. These slides include annual earnings and sales guidance. These slides are provided on our Web site, www.riteaid.com, under the Investor Relations information tab. This guidance is a point-in-time estimate and the Company expressly disclaims any current intention to update it. This conference call and the related slides will be available on the Company's Web site until the next earnings call, unless the Company withdraws them earlier, and should not be relied upon thereafter. We will not be referring to the slides directly in our remarks, but hope you'll find them helpful as they summarize some of the key points made on 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 made 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 other documents we file or furnish to the Securities and Exchange Commission. Also, we will be using a non-GAAP financial measure. The definition of the non-GAAP financial measure along with the reconciliations to the related GAAP measure are described in our press release. Also included in our slides are the non-GAAP financial measures of adjusted EBITDA gross profit and adjusted EBITDA SG&A and the reconciliations of those measures to their respective GAAP financial measure. With these remarks, I'd now like to turn it over to John.

Thanks Matt, and I thank you all for joining us to review our fourth quarter and full year results for fiscal 2015. Our results for the fourth quarter reflect continued strong growth in revenue. Same-store sales increased 4.5% which was driven by a 3.5% increase in same-store prescription count. As in past quarters, we continue to see script count growth in states with expanded Medicaid and also benefited from our prescription file buy initiative and an increase in cold and flu related incidents compared to the prior year fourth quarter. Also during the quarter, we generated 343 million in adjusted EBITDA compared to 356 million during last year’s fourth quarter. Strong cost control along with growth in front-end and pharmacy sales had a positive impact in the current year quarter. It’s also important to note that last year’s fourth quarter was impacted by a $28 million favorable reimbursement rate adjustment related to MediCal. When excluding this adjustment adjusted EBITDA would have increased year-over-year. Net income for the quarter was $1.835 billion and was favorably impacted by a reduction of a valuation allowance against deferred tax assets. Darren will provide additional information on this non-cash item later on during this call. Fiscal 2015 was a year of growth and transformation in which we made important strategic moves to position Rite Aid for long-term growth and continue our evolution into a retail healthcare company. It was a great year with many highlights, and here are just a few. We continue to drive significant top-line growth including increases in same-store front-end sales, pharmacy sales and prescription count. We leveraged this top-line growth by effectively managing our expenses, including reductions in interest expense and delivering our third consecutive year of profitability. We strategically increased capital expenditures in areas that generate strong returns for our business, including prescription file buys and wellness store remodels. We laid a strong foundation to begin increasing our number of store relocations and begin building new stores highlighted by the recent opening of the first net new store our company has built in nearly five years. We acquired RediClinic and added the first 24 RediClinics to Rite Aid stores. We introduced and expanded the Rite Aid Health Alliance program for patients with chronic health conditions and improved our coaching and disease management capabilities through the acquisition of Health Dialog. We partnered with well-known brands to create exciting enhancements for wellness+ which we’ll launch in May as wellness+ with Plenti. We strengthened pharmacy services by increasing our number of unionizations and introducing Vaccine Central and the Quit For You Smoking Cessation program. And finally, we completed the conversion of all stores to the new drug purchasing and distribution arrangement with McKesson which will help us control costs and drive efficiency throughout our traditional drug dispensing business for years to come. Perhaps the highlight of the year was how our continued success in these areas put us in position to pursue yet another important strategic initiative. Our agreement to acquire EnvisionRx, a leading pharmacy benefit manager that also offers a broad range of pharmacy services. As we said in our initial announcement, this acquisition will significantly expand our health and wellness offering and allow us to create a compelling pharmacy offering across retail, specialty and mail-order channels. In addition, EnvisionRx also offers prescription drug plans in one of healthcare’s fastest growing markets seniors enrolled in Medicare Part D. Simply put, we believe this acquisition will position our company to better compete in today’s rapidly evolving healthcare marketplace. We are making considerable progress as we work toward completing the acquisition, including the recent announcement that we completed our acquisition financing and if the FDC granted early termination of the Hart-Scott-Rodino waiting period. We expect the transaction to close by September 2015 if not sooner, pending remaining regulatory approvals and customary closing conditions. Before I turn it over to Ken, I just like to say that we’re excited about how the hard work and success of our entire team has positioned us to aggressively pursue ways to better compete in the healthcare marketplace and deliver a higher level of care to the communities we serve. At this time, I’d like to turn it over to our President and Chief Operating Officer, Ken Martindale who has additional information regarding our key initiatives. Ken?

Thanks, John and thanks to everybody for joining us on the call this morning. As John alluded to, our recent success has given us tremendous opportunity to more aggressively pursue new ways to grow our business, drive innovation and provide unique and engaging experiences that truly differentiate Rite Aid from other retailers. Over the past few years our wellness+ loyalty program has been the cornerstone of our unique brand of health and wellness. This award winning program continues to deliver incredible value to customers and tremendous results for Rite Aid. We said from the beginning that we would always look for ways to make this highly successful program even stronger and that’s one of the many reasons we were excited to announce our participation in Plenti, the first coalition loyalty program in the United States which we’ll launch in May. Through our free wellness+ and Plenti program members will be able to use one card and earn two kinds of points. Customers will continue earning valuable wellness+ points toward front-end discounts of up to 20%, exclusive sales pricing and 24x7 access to Rite Aid pharmacists. When our exciting enhancements officially launch +UP rewards will become Plenti points, which customers can earn whenever they make qualifying purchases with Rite Aid and all other Plenti partners like ExxonMobil, Macy’s, AT&T, Nationwide, Direct Energy and Hulu. Plenti points will offer the same savings as +UPs and provide even more value to customers since they can be used at Rite Aid as well as other Plenti partners. Customers can also earn Plenti points at other participating retailers and redeem them at Rite Aid, which represents a great opportunity for us to acquire new customers and drive incremental sales. Our team is currently making final preparations for the official launch of this terrific enhancement to wellness+ and we’re excited about the opportunity to give our customers even more reasons to shop at Rite Aid. We continue to enhance additional stores through our successful Genuine Well-being remodel program. By the end of the quarter, we had a grand total of 1,634 wellness stores which represents about 36% of our chain. These stores continue to outperform the rest of the chain in terms of same-store front-end sales and script count and we continue to work with our supplier partners to pilot innovative merchandising solutions that deliver engaging customer experiences. As John mentioned earlier, we’ve added our first RediClinics to Rite Aid stores to further expand the level of care we can provide to our patients. We currently have 24 RediClinics open in our Philadelphia and Baltimore Washington DC markets. And last week we opened the first three Rite Aid RediClinics in the Seattle market. By the second quarter we expect to have 11 clinics operating in Seattle bringing our total to 35 Rite Aid RediClinics. At the same time, we continue to open additional locations in Texas where RediClinic is already a leading provider of convenient care clinic services. Our strong focus on growing our immunization business continues to pay dividends and made positive contributions to our script count growth. During this past flu season, we delivered 3.2 million flu shots compared to 2.8 million in the previous year. We also administered more than 560 non-flu immunizations to protect against conditions such as shingles, whooping cough and pneumonia. This represents an increase of approximately 29% or 125,000 non-flu immunizations when compared to last year. Immunizations continue to be a key area of focus and they help demonstrate to our patients that we can deliver convenient and effective healthcare services beyond just filling prescriptions. We continue to make strategic investments in capital expenditures to drive efficiency and fuel growth throughout our entire operation. In fiscal 2015, we completed $113 million in file buys compared to $87 million in the prior year. These transactions have contributed to our script count growth and we have allocated $100 million in file buys spend for the upcoming year. Also during the quarter we announced that our new 900,000 square foot distribution center will be constructed in Spartanburg South Carolina and employee nearly 600 people once it becomes fully operational. We plan to begin shipping out of this building early next fiscal year. The construction of this new facility will drive much greater efficiency in our supply chain. Our customers continue to respond positively to our offering at private brand products with private brand penetration increasing to 19.1% during the quarter. We are focusing on enhancing our product assortment and quality to create a world-class private brand. In the fourth quarter, we introduced the Receutics Active Skin Repair line which is now available online at receutics.com and riteaid.com as well as select stores in New Jersey and Washington. These dermatologic strength products are clinically proven to improve outcomes for common skin conditions such as acne and eczema. In fiscal 2016, we will introduce additional exciting brands to our stores as we continue driving innovation throughout our entire portfolio of private brand products. To sum it up, we’re really excited about the excellent progress we’re making with our key initiatives. We look forward to building upon this success by continuing to find innovative ways to deliver additional convenience, value and services as part of a truly differentiated customer experience. At this time, I will turn it over to our Chief Financial Officer Darren Karst, who will provide additional details about our financial results. Darren?

Thanks, Ken and good morning everyone. Our fourth quarter results reflect continued strong script count and front-end trends, good cost control and continued progress on our business initiatives. Net income for the quarter was significantly impacted by a reduction in our deferred tax assets valuation allowance, which I will describe in more detail in a few minutes. On the call this morning, I’ll walk through our fourth quarter financial results, discuss our liquidity, certain balance sheet items, our capital expenditure program and finally review our fiscal 2016 guidance. Revenue for the quarter was $6.8 billion which was 250 million or 3.8% higher than last year’s fourth quarter. The increase was due to higher front-end and pharmacy sells, as well as incremental revenue contributed from RediClinic and Health Dialog. Overall same-store sales increased 4.5% in the quarter. Front-end same-store sales increased by 2% due to higher levels of cough, cold and flu incidents and good performance in core drug store categories. Pharmacy same-store sales were higher by 5.7% which included a negative impact of approximately 128 basis points from new generic drugs. Pharmacy same-store script count was up 3.5% reflecting higher utilization in Medicaid expansion space and an increased in flu incidents. Adjusted EBITDA in the quarter was $343 million or 5% of revenues which was $13 million less than the prior year fourth quarter of 356 million or 5.4% of revenues. Our prior year fourth quarter benefited from a $28 million favorable adjustment that was related to a decision by California to exclude certain drugs from a retroactive MediCal reimbursement rate adjustment. The current quarter’s results were primarily driven by improved sales, offset impart by higher SG&A, which was also the result of higher sales. Net income for the quarter was $1.835 billion or $1.79 per diluted share, included in net income is an income tax benefit of $1.716 billion or $1.67 per diluted share which is primarily the result of a reduction of our deferred tax asset valuation allowance of $1.841 billion offset by income tax expense of $125 million. The majority of that tax expense is not currently payable due to our ability to use our tax NOL carry-forward. Net income for the quarter was also impacted by LIFO credit of $23.5 million as compared to a LIFO charge of $44.1 million last year. The reduction of our tax valuation allowance in the fourth quarter is a major milestone for Rite Aid and marks the successful completion of our business turnaround. It was based on the Company’s return to accumulative pre-tax book income and a pattern of sustained earnings over the past three years. We’ve assessed and considered all available evidence and have determined that our future projections indicate that substantially all of our federal deferred tax assets and a portion of our state deferred tax assets are more likely than not realizable in the future. Accordingly we recorded a reduction to our valuation allowance of $1.841 billion. With this change in the future we expect to record income tax expense based on our statutory tax rate, so while we will record book income tax expense, we still anticipate having minimal cash taxes for the foreseeable future as we utilize our NOL carry-forwards to offset taxes currently payable. Total gross profit dollars in the quarter were $70 million better than the prior year quarter and flat as a percent of revenues. Adjusted EBITDA gross profit which excludes specific items was favorable to the prior year quarter by $4.6 million, but 101 basis points unfavorable as a percent of revenues. Pharmacy gross profit dollars and margin rate were worse than the prior year. Pharmacy growth profit was negatively impacted by the cycling of the prior year’s favorable MediCal adjustment and continued reimbursement rate pressure which we were able to offset somewhat through purchasing efficiencies and increases in script count. Front-end gross profit dollars were favorable to the prior year while the rate was unfavorable. Adjusted EBITDA gross profit was also favorably impacted by lower distribution costs since we no longer deliver pharmaceuticals through our distribution centers, as well as additional revenues from Health Dialogue and RediClinic which were acquired in the current year. Selling, general and administrative expenses for the quarter were higher by $1.7 million but 93 basis points lower as a percent of revenues compared to last year. Adjusted EBITDA SG&A dollars which excludes specific items were higher by $17.6 million but 62 basis points lower as a percent of revenues compared to last year as we were able to leverage the increase in sales through our various expense control initiatives. The increase in dollars was driven by incremental operating costs related to Health Dialogue and RediClinic and payroll and benefit costs related to our higher sales volume offset partially by reductions in litigation expense, advertizing and utility costs. FIFO inventory was lower than the fourth quarter of last year by approximately $132 million driven by a reduction in pharmacy inventory resulting from our transition to direct store delivery from McKesson. We were able to eliminate pharmacy inventory from our distribution centers as a result of the McKesson arrangement. The planned reductions in store inventory have been slower than originally expected. We do expect to see additional working capital benefits from store pharmacy inventory reductions in fiscal 2016. Our cash flow statement for the quarter shows a net source of cash from operating activities of $175 million as compared to a source of $194 million in the prior year quarter with working capital timing differences driving most of the difference. In particular the timing of the receipt of certain rebate payments that were received shortly after the end of our fiscal year instead of prior to year-end had a negative impact on our year-end working capital balances. Net cash used in investing activities for the quarter was $130 million versus $78 million last year. During the fourth quarter we opened one store, acquired two stores, remodeled 115 stores, expanded two stores, relocated three stores and closed five stores. So at the end of the year we had completed and grand reopened 1,634 wellness stores. For the fourth quarter front-end same-store sales in our wellness stores that have been remodeled in the past 24 months, were approximately 348 basis points higher than our non-wellness stores and script growth in these stores was 226 basis points higher. Now let’s discuss liquidity. At the end of the fourth quarter we had approximately $1.2 billion of liquidity. Our liquidity has decreased by $114 million year-over-year, due primarily to the fact that in October we used borrowings on our revolving credit facility to fund the early redemption and payment of the full $270 million of our 10.25% senior secured notes. In January we completed a refinancing and re-pricing of our revolving credit facility under which we increased the amount of the facility from $1.8 billion to $3 billion and used the proceeds to repay our Tranche 7 first-lien term loans. We expect this refinancing to save us approximately $20 million in interest expense on an annual basis. We have the ability to increase the availability under the revolver to $3.7 billion if we use the proceeds to repay our 8% first-lien notes which we expect to do when they become callable in August 2015. We expect this refinancing of the 8% notes with the use of our revolver to provide an additional $30 million in annual interest expense savings. We had $1.725 billion of borrowings outstanding under our $3 billion revolver at year-end and had $71 million of outstanding letters of credit. Total debt net of invested cash was lower by $110 million from last year. Our leverage ratio which we define as total debt less invested cash over LTM adjusted EBITDA improved to 4.27 times versus 4.34 times as of the end of last year. As previously announced, we recently completed the issuance of $1.8 billion of 6.125% guaranteed unsecured notes to provide us with the proceeds to fund the cash portion of our purchase of EnvisionRx. These notes mature in 2023. In the unlikely event that we do not complete the acquisition of Envision, we can either redeem these notes at a price of 101 or use these notes to refinance other indebtedness. Now let’s turn to our fiscal 2015 guidance. Our guidance reflects our expectations for continued reimbursement rate pressure and the benefits from the McKesson purchasing arrangement as well as the anticipated benefits of our wellness remodel program and other initiatives to grow sales and drive operational efficiencies. Our guidance does not reflect any impact from the pending acquisition of EnvisionRx due to the uncertainty as to when the transaction will close nor does it include the incremental interest expense from the recently issued 6.125% notes. We will update our guidance to include the impact of Envision as well as the interest expense on the 6.125% notes after we close the transaction. I would highlight that if you assume the acquisition closes in September, which is the outside closing date under the Envision merger agreement then the interest expense on the recently issued 6.125% notes would add approximately $55 million of interest expense during the period prior to that closing date. We expect the working capital benefit of approximately $200 million to $250 million through a reduction in store pharmacy inventory driven by lower store inventory requirements resulting from five day a week pharmacy delivery to our stores from McKesson. We expect script growth to benefit from the Affordable Care Act, favorable demographics, file buy acquisitions, growth in immunizations and other initiatives. We expect total sales to be between $26.9 billion and $27.4 billion and adjusted EBITDA to be between $1.25 billion and $1.35 billion for fiscal 2016. Same-store sales are expected to be in the range from an increase of 2.5% to 4.5% including the anticipated negative pharmacy sales impact of approximately 400 basis points from new generic introductions and continued reimbursement rate pressure. We expect a range of net income of $190 million to $275 million and earnings per diluted share to be in a range of $0.19 to $0.27. Our net income and EPS guidance is net of estimated income tax expense of between $130 million and $180 million which equates to $0.13 to $0.18 per diluted share. That said, we still expect our cash income taxes to be in a range of $10 million to $20 million as we will continue to be able to utilize our $3.1 billion federal tax NOL carry-forward to offset taxes that are currently payable. The range of guidance is primarily driven by our same-store sales range and pharmacy margin expectations. We also have stepped up our investment in the rollout of RediClinic and we would expect to incur some early start-up losses associated with opening approximately 50 additional clinics in fiscal 2016. Note that our net income for fiscal 2016 includes a more significant income tax expense for book purposes than in prior years due to the reduction of our deferred tax asset valuation allowance this quarter. Our fiscal 2016 capital expenditure plan is to spend approximately $650 million with approximately $105 million related to new and relocated stores, $225 million related to wellness remodels and approximately $100 million for script file buys. We’re planning to open 11 new stores, complete 33 relocations and remodel 400 wellness stores in fiscal 2016. We expect free cash flow to be in a range of $300 million to $400 million for the year including the benefit of lower pharmacy inventory. We expect to close a total of 40 stores of which the guidance includes a store lease closing provision for 10 stores with the balance of the stores closing upon lease expiration. This completes my portion of the presentation. And now I’d like to turn it back to John. John?

Thank you, Darren. As we close out another successful year, I’d like to thank our nearly 90,000 Rite Aid associates for the great work they’ve done both during the fourth quarter and throughout fiscal 2015. Without their continued dedication and commitment in success of Rite Aid, we wouldn’t have been able to pursue these new growth and healthcare initiatives that will help us deliver a better experience for our customers. Looking forward, although we continue to face a challenging reimbursement rate environment, we are excited to continue growing our business by fully leveraging our strategic investments and implementing our initiatives that deliver value to our customers and provide greater access to convenient, affordable and high quality healthcare. That concludes our prepared remarks for this morning. We will now open the phone lines for questions.

Thank you. [Operator Instructions] And your first question comes from George Hill of Deutsche Bank.

I guess Darren why would stress I guess if we look at the end of the third quarter when we look at the big puts and takes going into the ’16 we have the annualization of the McKesson be about 80 million reimbursement pressure going the other way being about half that and a handful of other items the big one is going generic inflation a little bit of loss in Med D well I guess what I am saying is your guidance is just kind of squaring with what I expect you to be are there any new moving pieces or has anything meaningfully changed from where we thought those items were going to be at the end of the third quarter versus where we are now?

Well, I’ll jump in. this is John. I don’t know whether any of those numbers you’ve said there came from so I don’t want to attach us to those numbers they’re certainly your estimates and I appreciate that. But I think those are a lot of the major factors that we’re looking at in developing our guidance. We are as we’ve talked about last year we see the reimbursement rate pressure to kind of follow the generic wave dribbling into this year so we see continued rate pressure this year. We’re working really hard with McKesson to continue to drive value. On the purchasing side, we’re working very hard on running our business as efficiently as we can. We’ve got some really exciting initiatives to grow the top-line in particular Plenti’s we have a lot of good things going on we hope from a top-line perspective and those are I think some of the big elements kind of rolling around at this time.

The only thing I would add John is in the second quarter of last year we had a $40 million kind of one-time inventory valuation item that we’re going to be bumping up against this year. I don’t know if that was what you were referring to George but it was about $40 million.

And I guess I kind of threw all that stuff at you quickly I had a lot I wanted to get out. And maybe John and Darren a quick follow-up would be as you guys have a lot of interesting investment initiatives going on between what you’re doing with Health Dialog, the clinics and what will be the bringing on of the Envision business. Is there a way to quantify the dollar value of the initiatives that you guys are taking it will be a drag at the EBITDA level that kind of pick de-masking the underlying strength of the business?

I think we are making some investments in the areas you just mentioned. Obviously the clinics as we open those take time to reach profitability so there is a drag as we grow the clinic business it’s also a drag associated with net new stores which we’re beginning to -- it’s in early stages of ramping up again with 11 of those coming into the fiscal year and we are making some investment in Rite Aid Health Alliance which is really kind of the Health Dialog business. So those are all investments that are included in the guidance. I don’t think we’ve anticipated quantifying that investment this morning but you’re right those are all negatives to the EBITDA in the near-term.

Thank you. Your next question comes from Robert Jones with Goldman Sachs.

I guess kind of along the same lines I know you guys don’t usually provide gross margin guidance. But given the volatility in this line, last year I thought maybe it’d be helpful just to give us a little bit more on how you’re thinking about some specific items? And I guess the first obviously would be around reimbursement rate pressure and you guys mentioned in the last call that you expected this to weigh on gross margins. Anything you can share with us on what the impact was from reimbursement rate pressure in fiscal 4Q that might help us get a sense of how you’re thinking about that relative to fiscal ’16?

I’m not sure there is. I think as you know we’ve talked a lot about there are contracts that renewed at different points of times throughout the year. We still have some Mac business so I am not sure. I wouldn’t assume that what we saw in the fourth quarter sort of like the January and February implies what reimbursement rate pressure would be for the rest of the year I guess that’s what you’re trying to go to I don’t think that’s the answer. We expect the reimbursement rate pressure will build some during the year, but we also think our efficiency initiatives and our work with McKesson will also continue to add value throughout the year.

Yes directionally that’s where I was going and even anything year-over-year on a relative basis I thought would be helpful. I mean I guess just to follow-up then going the other way you guys are now you mentioned buying from McKesson. Are you at a point where you’re experiencing kind of the full run rate benefit of that purchasing savings and as McKesson continues to scale this platform how are you contemplating incremental benefit from this arrangement throughout the balance of the year.

So we are fully ramped at this time and we are getting benefit from the relationship that is very much in line with our expectations when we entered into it. As I said we think that it’ll continue to gain momentum throughout the year. There’s a number of different activities that we go through with McKesson that we think will continue to drive cost out of this thing and we do believe that as they continue to build scale, it will benefit us overtime, that is our belief.

But that’s not what’s baked into ’16 at this point?

What’s baked into ’16 at this point is really related to our direct work with McKesson, they do other things to gain scale and help us that is not in our guidance.

Thank you. Our next question comes from John Heinbockel of Guggenheim Securities.

So a couple of things, when you thought about the Plenti addition and how that would benefit you what was sort of the thought process, and how do get your arms around, this is what we think it can do, to our top-line, this is we think, the bottom-line impact can be and in particular when you think about top-line is that this more at acquiring in customers or do you think this is more of better benefit for existing customers so you can maybe graduate people more people to silver and gold, how do you think about the impact of this?

I think I will pass this one to Ken.

You know John, I think you’re pretty much right on target. As you know we’ve had a fairly steady migration of people through the system and our objective is to continue to drive people to those higher tiers. And as we drive them to the higher tiers their loyalty increases. We’ve had pretty good results with that, I think you know as the program has matured we’re always looking for ways to drive new people into the program and so first and foremost I think this is going to be a terrific acquisition tool for us because we’ve got the opportunity to reach out to customers that don’t shop with us today that shop with all these partners. With that said I think there is an opportunity for us to continue to drive increased purchases from existing customers and continue to drive it through the system. You know the great thing for our customers is that they lose nothing in this transition. All the benefits from wellness+ stay and a major change is that the +UPs will move to Plenti points which they can spend at other retailers and they can also earn them at other retailers and bring them into Rite Aid. So it’s a great situation, we’re really excited about the partnership with these new partners in the program and we think it’s going to be a big win for our customers.

Do you think is it important enough where it can move the dial between the low-end and the high-end of your comp guidance for the year recognizing it is only going to be nine months, but is it that important?

You know John I think it’s going to much like when we launch the program initially it’s going to be a slow build as people engage with the program and that’s going to take them a while to understand it and the more exposure they get from us and also all of our partners, we would expect this to ramp over a couple of years. So I think it’ll be a nice consistent slow build overtime.

All right, and then for John I guess, if you look at script trends the last few months so we saw a slowdown. Some of that was whether and flu, some of it looks like it might be something else. Do you think Medicaid expansion is ramping up a little slower, the uptake is a little slower or is there something else out there?

Well I think we’re, John we’re in a cycle, gradually over the next few months we are going to cycle some rapid growth last year in Medicaid expansion so that’s, it builds through the first couple of quarters, we could grow and I think we’re going to work our way through that over the next couple of quarters so I think that’ll, that’s a little bit of a headwind we have to work through so I think that’s part of what you’re seeing there.

And then just lastly, I know it is early yet but is there any updated thought on the selling season with Envision? I know there was maybe some issue that they would be in kind of limbo here until the deal closed. Maybe that has an impact on the selling season. Have you seen anything yet or it is way too early?

It’s a little early, I would tell you I don’t sense any kind of limbo at all, I think they’re very active.

Thank you. Our next question comes from Ross Muken of Evercore ISI.

You guys threw into the myriad of moving parts in the press release sort of a concept of what is going on in the wage line. Can you just give us a little color on your expectations? This has kind of been a hot button topic with all the debate on what is going on with the minimum wage in the number of retailers. Can you just give us some thoughts on how that and benefits are kind of impacting the SG&A line maybe more qualitatively than quantitatively for next year?

That’s our standard language actually. If you go back to the last couple of years I think it’s pretty similar, so what’s in there is our normal rate of wage increase. And you know from our perspective we obviously have to be competitive in the marketplace, so we have to kind of see how things play out but we look at it holistically like you just said, we look at benefits and working conditions and everything else that goes into the equation and we think today we still have a very competitive offering in the marketplace. So what we have built in here is what were normally doing from a wage increase perspective.

And maybe as we think about some of the revenue pressures that you are seeing, you had talked about low single-digit type pressure. Is there any way you could parse that into both generics and then pricing in sort of two buckets, maybe just directionally?

I think Darren you can help me out here but I think when Darren was referring to there is we do have a little bit of a pickup in new generics this year and number that mid single-digit number that went out there 400 basis points I think, is really the negative drag caused by a brand switching to generic at a lower price.

So it is just the conversion, it is not anything in terms of right now? Okay. Thank you.

Thank you. Your next question comes from Bryan Hunt of Wells Fargo.

First of all, I was wondering when you look at the EnvisionRx transaction, you have already got the approvement from the FTC. I was just wondering what other major agency requirements need to be completed before the Envision deal closes?

So Envision also includes a captive insurance company, that is a Part D plan sponsor and so there are some states where we need to get approval from insurance perspective, the biggest being Ohio.

You don't foresee any issues with getting those completions done in a timely fashion, do you?

We do not.

And then the next question is, when you talk about the RediClinics that you have opened already, is there any way you could discuss the initial sales synergies from those openings as well as the adjustments to merchandise square footage in the stores that have put clinics in?

So I guess there is a couple of parts to that, first of all we’re seeing some net new customers which we think is a real positive in those and there are scripts coming out of those that are getting filled at our stores. So, I think from a revenue synergy perspective it is kind of two things going on there that seem positive to us and in terms of the square footage of the merchandising impact.

Yes, I think the merchandising impact is fairly minimal. The team has spent a lot of time trying to lay this out. It really is consistent with what we’re already dealing when we remodel wellness stores, we are reallocating space to more categories and you just see more of that happening but it’s I would say the impact on the merchandising side is minimal.

And then my last question is when you look at script purchases, can you talk about the relative inflation you have seen on script file buys over the last couple of years and maybe what you are forecasting for your fiscal 2016? Thanks.

I think, we haven’t seen a lot of inflation in terms of the value we’re paying for I assume that’s what you talking about?

Yes and value per file.

No, it has been pretty consistent.

Thank you. Your next question comes from Lisa Gill with JPMorgan.

Just following up on a couple of questions here, first, when we think about same-store sales, can you talk at all about what has been the impact of some of the preferred networks, whether it has been positive? I know that you are in one or two less preferred networks this year versus last year and the impact that is having on same-store sales? And then just following up on the EBITDA, as I look at your fiscal 2016 and new generics that are coming to market, it looks pretty substantial as far as the number of new drugs that are expected to come. I would assume that that should be a positive especially given your relationship with McKesson and your ability to procure those drugs at a better price than you have done historically. Am I looking at that incorrectly?

No, there are a couple of, well there is a lot of drugs I think there is just a few that are truly significant on here in all else. We actually have Nexium and Abilify are the two biggest that we got this fiscal year so they’re going to help us. Obviously it spurs into the whole equation of reimbursement rate pressure and purchasing synergy and everything else that we’re working on from a margin perspective. So we’ve stirred all that into, that is all included in our guidance and depending on how they come to market and how fast they penetrate and those kind of things, it can move these numbers around a little bit but based on our current expectations with the way we expect to see these drugs that’s reflected in the guidance that we have right now. In terms of Part D on the top-line, we’re a little softer in our Part D business on a year-over-year basis as we come through the first couple of months of the year, so that has been also a little bit of a negative drag on script count.

So, John, when I think about the business overall and what you have been able to do and I think people are trying to get you to talk about the specific investments that you are making, to me I am looking at your same-store sales 2.5% to 4.5% growth but yet you are talking about EBITDA being down negative 5.5% to a positive 2.1%. I'm just trying to square those numbers so that when we think about how the business is growing and the headwinds and the tailwinds, is it really reimbursement is the biggest differentiator there or are all of these investments really, truly the other piece of the pie that is really, truly weighing down on where you could potentially see EBITDA down year-over-year? It just seems like you have made so much progress that these numbers feel a little conservative on my side?

So it’s probably, it’s more reimbursement rate than it is those other investments but it is all of them combined that is impacting guidance that we are giving.

Your next question comes from Mark Wiltamuth of Jefferies.

Just wanted to get your thoughts on what is going on with generic cost inflation. I guess excluding what is going on with your McKesson relationship, are you still seeing cost inflation out there? And then just broadly looking at the guidance, are we to assume that the overall pharmacy margin is going to be down if we are looking at a flat to declining EBITDA guidance?

So I guess two things there it’s hard for me to parse to take McKesson out of that equation and say without McKesson generic inflation is X or Y because we do buy through McKesson on everything. And overall it’s our expectation that our net generic drug cost is going to come down. So we think it’s to us a net deflationary market. We do know that there will be individual drugs that there will be instances where we’ll see some cost increases throughout the year that’s a constant battle that we fight every year. But our overall our guidance reflects the fact that we think we’re going to be overall in a cost reduction environment versus a cost increase environment.

How about the overall pharmacy margin for the year? Should we be thinking something down?

Yes it’s down on a rate basis. We have volume here and obviously AWP has grown some overtime we took those some of these new engineers mature but on a rate basis this was down year-over-year.

And I guess is a way to think about this that the pharmacy reimbursement rate is the thing dragging the whole equation down? You have the McKesson positives, you have generic drug positives. I guess is there opportunity for the generic drug number to move up further throughout the year especially as we look at Nexium has started as a generic but it really doesn't have multiple source providers out there yet.

I think that’s right I mean it is our expectation that it is going to get multi-source somewhere along the year but obviously the sooner the better and that can help us for sure.

Your next question comes from Steven Valiquette of UBS.

I guess just on that generic price and the follow-up, I think a lot of us are still trying to look back at fiscal ’15 and just figure out how much of the profit pressure related to generic price inflation was transitory in nature versus something that could be maybe a major source of profit pressure again. So I guess the question is -- this is somewhat hypothetical but let's say if we had these same level of generic inflation in FY16 versus FY15, would there be a different outcome on the profit impact to you because now the mechanics of the distribution deal with McKesson have settled in and now you can work with them to avoid problems? I want to try to circle that first. Thanks.

I mean if we end up with net drug inflation we’re going to have a problem and it’s just not our expectation I think last year we had a lot of struggles in the early implementation phase of the McKesson arrangement but once we got fully ramped up with them we were able to deal with the issues that arose during the rest of the year and I think when we stand back and look at the year again kind of overall we were not in a net inflationary position last year. And it is not our expectation to be in that inflationary position this year.

Now in the quarter you just reported you had a, I guess it is pretty impressive you were able to generate a LIFO credit. Wondering is that a result of the procurement savings you are getting from McKesson or does that maybe suggest that generic inflation is moderating a little bit and that is a component of having a LIFO credit instead of a LIFO charge in the quarter?

I mean it is impart because of deflation but it’s also because we have lower inventory balances so both of those things stirred in to create that credit.

Christy we’ll take one more question please.

Thank you. Your final question is coming from John Ransom of Raymond James.

Could we just revisit if you don't mind, the net math on McKesson in your guidance versus fiscal 2015. So you have the $40 million hurdle which you got some savings versus the full year of McKesson. I'm looking at it as close to a push but could you just help me with that math?

I probably can’t I will again tell you that you that we think there is substantial value from the McKesson relationship, again we expect that we’re going to reduce our overall drug spend and unfortunately we still are digesting some rate pressures through this fiscal year and that’s eating up a lot of those savings.

Okay. This concludes the call. We think everybody for participating.

Thanks everybody.

Thank you.

Thank you. This does conclude today’s conference call. You may now disconnect.