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Rite Aid (RAD) Dips 21.6% in Three Months: Can It Bounce Back?

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Shares of Rite Aid Corporation RAD slumped 21.6% in the past three months against the industry’s growth of 8.2%. The stock’s dismal run on the bourses is mainly due to the weak fiscal 2022 view. Also, elevated costs, stemming from the Bartell buyout and higher wages, remain concerning.

For fiscal 2022, management expects sales of $24.4-$24.7 million, down from the earlier mentioned $25.1-$25.5 billion. The Pharmacy Services segment’s sales are likely to be $7.1-$7.2 billion, down from the previously mentioned $7.7-$7.8 million. Although adjusted net loss is envisioned to be 49-4 cents compared with the previously mentioned loss of 90-53 cents, its mid-point of a loss of 26.5 cents compares unfavorably with the fiscal 2021 reported figure of a loss of 15 cents.

Higher costs continue to take a toll on the company’s performance. The company’s SG&A expenses grew 10.4% year over year in the third quarter of fiscal 2022 due to higher payroll costs, elevated bonus expenses for store field and corporate associates, a rise in compensation, and the inclusion of the Bartell-related expenses. This led to a year-over-year adjusted earnings decline of 62.5%. Any further rise in expenses is likely to hurt the bottom-line performance.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

However, this Zacks Rank #3 (Hold) company is leaving no stone unturned to get back on track. Continued strength in its underlying business, accelerated COVID-19 vaccine program, the expansion of delivery services and strengthening its foothold in mid-market PBM bode well. It remains committed to providing lower healthcare costs, better customer engagement and personalized services.

The company has been offering home delivery services to customers with an eligible prescription, with the benefit of zero delivery fees. It has also been providing pick-up and drive-through services for prescriptions and over-the-counter products at its stores. Rite Aid expanded the Instacart delivery service, and made strategic partnerships with Amazon and Instacart for home delivery, which is contributing to digital sales growth.

RAD partnered with DoorDash to offer same-day delivery of non-prescription health, convenience and wellness essentials, along with ScriptDrop to expedite the prescription delivery process. Shipt and Rite Aid also collaborated to provide same-day delivery of health and wellness products to Rite Aid’s retail footprint across 17 states.

Continued strength in on-demand delivery, third-party marketplaces, buy online pick up at store, curbside pickup options have been aiding sales. In third-quarter fiscal 2022, management expanded Uber Eats and Postmates, and rolled out its buy online, pick up at store service. In another development, Rite Aid is on track with plans to invest in its online scheduling platform, which will allow customers to schedule appointments for COVID-19, flu and other vaccines.

As part of its corporate strategy and growth plan, Rite Aid remains focused on strengthening its foothold in mid-market PBM, innovating its retail and mail-order pharmacy channels, enhancing the in-store experience by curated digital offerings, improving merchandise and rebranding its image with a new logo. RAD launched the first three Stores of the Future and successfully concluded the acquisition of Bartell, which will help expand the customer base.

Alongside this, it launched a loyalty program to improve its front-end margin, expanded its brands and enhanced PBM margins via its new rebate aggregation agreement. The company continues to witness a solid performance in PBM in terms of mail orders. Its new RxEvolution strategy, with the help of which Rite Aid is likely to become a leader in mid-market PBM, remains on track. Going ahead, management expects PBM revenues of $7.7-$7.8 million for fiscal 2022.

Conclusion

All said, we believe that expanded delivery services and strength in the PBM business will offset cost headwinds and help the RAD stock get back on track in the near future. Also, a VGM Score of A reflects its inherent strength.

Stocks to Consider

Here are three better-ranked companies, DICK'S Sporting Goods DKS, Boot Barn Holdings BOOT and Wolverine World Wide WWW.

Boot Barn Holdings, the leading lifestyle retailer of western and work-related footwear, apparel and accessories, flaunts a Zacks Rank #1(Strong Buy). In the last reported quarter, the company posted adjusted earnings of $2.23 per share. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial-year sales and EPS suggests growth of 62.6% and 220.8%, respectively, from the year-ago period. BOOT has an expected EPS growth rate of 20% for three-five years.

Wolverine World Wide, one of the leading marketers and licensors of a branded casual, active lifestyle, work, outdoor sport, athletic, children's and uniform footwear and apparel, carries a Zacks Rank #2 (Buy) at present. The company has a trailing four-quarter earnings surprise of 18.3%, on average.

The Zacks Consensus Estimate for Wolverine World Wide’s current financial year sales and EPS suggests growth of 34.4% and 125.8%, respectively, from the year-ago period. WWW has an expected EPS growth rate of 10% for three-five years.

DICK'S Sporting Goods, which is a sporting goods retailer, presently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 104.2%, on average.

The Zacks Consensus Estimate for DICK'S Sporting Goods’ current financial-year sales and EPS suggests growth of 27.8% and 151.6%, respectively, from the year-ago period. DKS has an expected EPS growth rate of 11.7% for three-five years.


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Rite Aid Corporation (RAD) : Free Stock Analysis Report

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Wolverine World Wide, Inc. (WWW) : Free Stock Analysis Report

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