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Rite Aid (RAD) Earnings Surpass Estimates in Q3, Stock Up

Zacks Equity Research

Rite Aid Corporation RAD reported better-than-expected earnings and sales in third-quarter fiscal 2020 results. The company delivered adjusted earnings from continuing operations of 54 cents per share, which significantly beat the Zacks Consensus Estimate of 3 cents. Also, the bottom line increased from the year-ago quarter’s adjusted figure of 28 cents. Further, it revised view for the current fiscal.

Notably, the bottom line benefited from higher adjusted EBITDA, courtesy of tight expense control and higher prescription count at retail pharmacies. Improved pharmacy network management at EnvisionRxOptions also aided performance. Further, the company has been investing in the expansion of EnvisionRxOptions, especially its services, technologies and clinical offerings.

Management stated that it will announce a comprehensive strategy for revitalizing the retail pharmacies as well as training pharmacists to cater to health and wellness needs.

Following the quarterly release, shares of this Zacks Rank #3 (Hold) gained 42.3% yesterday. In the past three months, the stock has surged 51% compared with the industry’s 12.7% rise. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



Q3 in Detail

Revenues inched up 0.2% to $5,462.3 million and surpassed the Zacks Consensus Estimate of $5,428 million. During the fiscal third quarter, the Retail Pharmacy segment revenues slipped 1.7% due to lower store count. In the Pharmacy Services segment, revenues rose 5.7% owing to rise in Medicare Part D membership.

Retail Pharmacy same-store sales slipped 0.1%, thanks to 0.5% decline in front-end sales. The downside was partly offset by 0.1% rise in pharmacy sales. Excluding cigarettes and tobacco products, front-end same-store sales inched up 1%. Pharmacy sales included an adverse impact of nearly 331 basis points (bps) from the introduction of new generic drugs. Further, prescription count at same-store sales, adjusted to 30-day equivalents, rose 2.8%. Prescription sales contributed 67.7% to total drugstore sales.

Rite Aid’s adjusted EBITDA increased 10.7% year over year to $158.1 million and adjusted EBITDA margin expanded 30 bps to 2.9%. The upside can be attributed to higher adjusted EBITDA in the Retail Pharmacy and Pharmacy Services segments.

Moreover, the Retail Pharmacy’s adjusted EBITDA benefited from robust labor and expense control, somewhat offset by lower gross profit and decline in the Transition Service Agreement fee income from Walgreens Boots Alliance WBA. The Pharmacy Services segment gained from improved pharmacy network performance.

Financial Status

Rite Aid ended the quarter with cash and cash equivalents of approximately $289.5 million, long-term debt (net of current maturities) of $3,566.3 million and total shareholders’ equity of $1,015.9 million.

Further, the company used cash from operating activities of $423.7 million in the fiscal third quarter.

Outlook

Rite Aid, which shares space with Herbalife Nutrition Ltd. HLF and CVS Health Corporation CVS, updated its outlook for fiscal 2020. The view includes the assumption of higher prescription count as well as improvements in drug costs and SG&A expenses, compensated with lower prescription reimbursement rates. Moreover, EnvisionRxOptions are likely to witness consistent improvements in pharmacy network as well as initial results of SG&A decline and gains from integration and restructuring efforts.

It continues to project sales in the range of $21.5-$21.9 billion for fiscal 2020. The company projects same-store sales growth in the band of 0-1% over fiscal 2019. Moreover, Rite Aid now anticipates adjusted EBITDA to be between $515 million and $545 million compared with the earlier projection of $510-$550 million for fiscal 2020.

Further, the company estimates net loss in the band of $174-$204 million compared with the prior expectation of $235-$275 million. The company now envisions adjusted earnings in the band of 13-55 cents per share compared with the earlier guidance of flat to 56 cents. Meanwhile, capital expenditures are expected to be nearly $230 million.

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