Redcare Pharmacy’s Growth Engine Revs, but the Profit Dashboard Flashes Warning Lights

Redcare Pharmacy's Q1 revenue jumps 18% to €850M on a 55% prescription surge, but margin erosion and a net loss of €10.5M weigh on sentiment as the stock remains down 62% YTD.

The prescription boom at Redcare Pharmacy is delivering a surge in revenue and customer numbers, yet the company’s bottom line is feeling the strain of its own success. The online pharmacy’s first-quarter results, released this week, paint a picture of a business scaling rapidly but paying a price in profitability that has left the market underwhelmed.

Group revenue climbed 18% in the first three months of the year to just under €850 million, fueled by a 55% explosion in prescription drug sales in Germany, which alone contributed €168 million to the top line. The adjusted EBITDA rose from €9.1 million to €14.4 million, a 58% jump. Yet analysts had penciled in a figure above €16 million, and the miss weighed on sentiment. The net loss for the quarter stood at €10.5 million.

The culprit is a structural shift in the business mix. Prescription medications carry thinner margins than over-the-counter products, and their rising share of sales dragged the gross margin down to 21.0% from 23.3% a year earlier. This continues a multi-year erosion, with management pointing to fierce competition, a higher proportion of Rx drugs, and the bonus payments introduced last autumn. The operating cash flow shrank from €37 million to €23 million as a result.

There are bright spots elsewhere. The over-the-counter segment, which had been sluggish, is showing signs of life. German OTC sales grew 9% in the first quarter and accelerated to around 11% in April. The active customer base swelled to 14.2 million, while the average basket size rose 9% to €68. Cost controls are also helping: distribution expenses fell relative to revenue, providing a partial buffer to margin pressure.

The stock closed Wednesday at €46.20, a far cry from its 52-week high. After a sharp drop in March, the shares have clawed back about 30% over the past 30 days, but they remain down 62% year-to-date. Volatility remains elevated as investors weigh the growth story against the profitability squeeze.

CEO Olaf Heinrich is sticking to the full-year script. Revenue is expected to rise by up to 15%, with the adjusted EBITDA margin targeted at a minimum of 2.5%. The prescription business in Germany alone is forecast to generate over €670 million. However, the medium-term margin target has already been slashed from above 8% to more than 5%, reflecting the heavy investment required to support expansion.

A new logistics hub in Pilsen, Czech Republic, is a key part of that spending, designed to boost capacity by 15 million packages annually. The capital outlay is weighing on near-term returns and has split analyst opinion sharply. Barclays cut its price target to €70, while Jefferies sees fair value at €150. Deutsche Bank maintains a buy rating, citing Redcare’s growing share of the e-prescription market.

The central challenge now is to stabilise the gross margin as the prescription share continues to climb. With the e-prescription tailwind still blowing strong, Redcare is gaining customers and scale at a rapid clip — but the cost of that growth is becoming harder to ignore.