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Rite Aid (RAD) Stock Plunges on Bleak Q4 Business Update

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Shares of Rite Aid Corporation RAD tumbled 16.2% after the close of the trading session on Mar 24, following its fourth-quarter fiscal 2021 business update, which reflects significant adverse impacts of COVID-19 and reduced cold, cough and flu cases. Also, unfavorable weather, particularly in February, weighed on the company’s supply chain, which in turn hurt sales in the said quarter. However, Rite Aid’s acute prescription volume witnessed a recovery in March.

Notably, front-end comparable same store sales fell 5.6% in the fiscal fourth quarter ending Feb 27, 2021, due to a 37% decline in cough, cold and flu-related cases. These being high-margin products negatively impacted front-end gross profit. Further, lower acute prescriptions to the tune of 14% led to a nearly 1% decline in comparable same store prescriptions. Also, it witnessed elevated SG&A expenses stemming from COVID-19-related costs, including bonuses, cleaning costs, pandemic sick leave and other operating expenses. Apart from these, fiscal fourth-quarter adjusted EBITDA was affected by lower cases of cough, cold and flu along with challenging weather and continued impacts of COVID-19.

Driven by these factors, management updated its fiscal 2021 guidance. The company now anticipates revenues to be roughly $24 billion compared with the earlier guided view of $23.9-$24.2 billion. Same store sales are forecasted to grow 3.5% year over year as compared to 3.5-4.5% expected earlier. Moreover, the net loss is envisioned to be $90-$100 million. Adjusted EBITDA is likely to be $425-$435 million, down from $490-$520 million guided earlier. Capital expenditure is expected to be nearly $315 million, reflecting a decline from the earlier outlook of $325 million. This current view is inclusive of $95 million related to the acquisition of Bartell Drugs. That said, it projects a strong liquidity of $1.7 billion, which is likely to help it stay afloat during the pandemic.

Moving on, Rite Aid has been selected as one of the providers of COVID vaccines in majority of the key states and cities across the United States. Encouragingly, it is accelerating the distribution of vaccines on a daily basis and has already been successful in administering roughly 1 million COVID-19 vaccines in March to date.

What Else Should You Know?

Rite Aid has been gaining from a rise in pharmacy sales, robust online performance and the expansion of services to its customers. Further, the company has been providing home service delivery to customers with an eligible prescription, with the benefit of zero delivery fees. Customers can avail pick-up services for prescriptions and over-the-counter products as well as the drive-through option, which is available at more than 50% of its retail locations. Moreover, it has launched the Buy Online Pickup In Store initiative in a bid to offer better drive-through and curbside pickup options.

Apart from these, Rite Aid expanded the Instacart delivery facility and received positive feedback for the same. Earlier, the company partnered with ScriptDrop to expedite the prescription delivery process. Consumers can now avail doorstep prescription delivery from all Rite Aid stores. This facility is being rolled out in a phased manner and was earlier expected to be completed by the end of fiscal 2021. Moreover, the surge in demand for Tele Health in the wake of COVID-19 has led the company to accelerate the launch of Rite Aid Virtual Care. Its new RxEvolution strategy, with the help of which Rite Aid is likely to become a leader in mid-market PBM, remains on track.

Despite continued uncertainty of the COVID-19 situation, Rite Aid’s efforts to offer a convenient shopping experience to customers along with its RxEvolution strategy are likely to uphold the stock. We note that this Zacks Rank #3 (Hold) stock gained 37.3% in the past three months, outperforming the industry’s growth of 12.8%.

Stocks to Consider in the Retail Space

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Hibbett Sports HIBB currently has a long-term expected earnings growth rate of 17.2% and a Zacks Rank #1.

Tapestry TPR, with a Zacks Rank #2 (Buy), has an expected long-term earnings growth rate of 10%.

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