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Rite Aid (RAD) Down 22.3% Since Last Earnings Report: Can It Rebound?

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General Dynamics (GD) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

A month has gone by since the last earnings report for Rite Aid (RAD). Shares have lost about 22.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Rite Aid due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Rite Aid Posts Narrower-Than-Expected Q4 Loss, Revenues Lag

Rite Aid reported narrower-than-expected loss in fourth-quarter fiscal 2019. The company’s sales also lagged Zacks Consensus Estimate and fell year over year.

Q4 in Detail

In the reported quarter, Rite Aid’s adjusted loss from continuing operations was 1 cent per share. Though quarterly loss was in line with the prior-year period, it was narrower than the Zacks Consensus Estimate of loss of 3 cents.

Revenues declined 0.3% to $5,379.6 million and missed the Zacks Consensus Estimate of $5,557 million. At the Retail Pharmacy segment, revenues for the fiscal fourth quarter remained flat year over year. At the Pharmacy Services segment, revenues inched up 1.2%, owing to increased Medicare Part D membership.

Retail Pharmacy same-store sales improved 0.7%, including 2.1% rise in pharmacy sales and a 1.9% decline in front-end sales. Notably, Pharmacy sales included a negative impact of nearly 100 basis points (bps) from the introduction of generic drugs. Further, prescription count at comparable stores advanced 0.8%. Prescription sales constituted 65.9% of total drugstore sales.

Notably, the company delivered the third straight quarter of same-store pharmacy sales and prescription growth despite a mild flu season. This was backed by a record number of immunizations as well as other script growth strategies.

Driven by lower pharmacy gross profit, Rite Aid’s adjusted EBITDA fell 13.4% year over year to $134.1 million. In addition, lower front-end same-store sales coupled with higher distribution costs, partly stemming from the realignment of stores across the company’s distribution network, hurt EBITDA. The downside was somewhat offset by reduction in salaries and benefits, lower advertising expenses, and higher Transition Services Agreement (“TSA”) fee income from Walgreens Boots Alliance (WBA). Meanwhile, adjusted EBITDA margin declined 40 bps to 2.5%.

Further, adjusted EBITDA at the Retail Pharmacy Segment totaled $96.2 million, depicting a 20.8% decline from the prior-year quarter’s figure. At the Pharmacy Services segment, the metric amounted to $37.8 million, reflecting rise of almost 13.5%.

Store Update

Rite Aid remodeled 30 stores in the fiscal fourth quarter, bringing the total wellness-store count to 1,765. Further, it shuttered 56 stores during the reported quarter, consequently taking the store count to 2,469 as of Mar 2, 2019.

Other Developments

Rite Aid completed the refinancing of a new senior secured credit agreement. This includes $2.7-billion senior secured asset-based revolving credit facility and $450-million “first in, last out” senior secured term loan facility. Furthermore, the company’s present $2.7-billion senior secured asset-based revolving credit facility was refinanced by the latest $3.15-billion credit facility. This facility was slated to mature in January next year. Impressively, Rite Aid boasts no debt maturing till 2023. It also raised liquidity by $450 million.

Furthermore, the company will start selling CBD creams, lotions, and lip balms at stores in Oregon and Washington, beginning from this month.

Financial Status

Rite Aid ended the fiscal fourth quarter with cash and cash equivalents of approximately $144.4 million, long-term debt (net of current maturities) of $3,454.6 million, and total shareholders’ equity of $1,186.7 million.

Further, the company used cash of $215.9 million from operating activities as of Mar 2, 2019.

Outlook

Rite Aid provided guidance for fiscal 2020. Management anticipates lower reimbursement rates, in line with the decline witnessed in fiscal 2019. This view also includes an assumption of a decrease of roughly $40 million in TSA fee income. The company is likely to offset the reduction in fee income by lowering corporate SG&A costs. Further, it expects rise of $11 million in rent charges, stemming from the adoption of the new lease accounting standard.

Depending on conditions in the generic drug space, the company is not able to largely compensate declines with generic drug purchasing savings in comparison to the last fiscal year.

Consequently, Rite Aid projects revenues of $21.5-$21.9 billion for fiscal 2020, with same-store sales growth of 0-1% for fiscal 2019.

Moreover, the company anticipates adjusted EBITDA to be between $500 million and $560 million. For fiscal 2020, management estimates net loss of $170-$220 million. Further, adjusted net (loss) income per share is now envisioned to be between loss of 1 cent and earnings of 4 cents.

Capital expenditure is anticipated to be roughly $250 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.


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