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Rite Aid (RAD) Surpasses Earnings & Sales Estimates in Q2

Zacks Equity Research
·5 min read

Rite Aid Corporation RAD reported impressive second-quarter fiscal 2021 results, wherein both top and bottom lines improved year over year. The company gained market share with a rise in same-store prescription count and higher front-end sales. It is also on track with its RxEvolution strategy. Additionally, cost-cutting actions and integration of Elixir contributed to quarterly growth.

Despite COVID-19-related woes, the company witnessed strong demand for cleaning supplies, paper products, OTC items and liquor as more and more consumers are taking to the stay-at-home trend. Also, demand for summer seasonal products along with essentials like hair care, nail and baby care remained positive.

Q2 in Detail

The company delivered adjusted earnings of 25 cents per share, exceeding the Zacks Consensus Estimate of 11 cents. Also, the bottom line came ahead of the year-ago quarter’s figure of 12 cents. This might be attributable to a rise in adjusted EBITDA, lower taxes and reduced interest expenses, which were partly offset by costs related to the shutting down of the RediClinic business.

Revenues grew 11.5% to $5,982 million and surpassed the Zacks Consensus Estimate of $5,757 million. This uptick was mainly due to solid performance in the Retail Pharmacy and Pharmacy Services segments. During the quarter, Retail Pharmacy segment revenues grew 4.4% due to higher same-store sales. In the Pharmacy Services segment, revenues rose 29.1% owing to a rise in Medicare Part D membership.

Retail pharmacy same-store sales advanced 3.5%, thanks to a 4.6% and 2.3% rise in front-end and pharmacy sales, respectively. Excluding cigarettes and tobacco products, front-end same-store sales rose 6.1% on the back of growth in certain product categories. Further, prescription count at same-store sales, adjusted to 30-day equivalents, grew 2.6% on the back of a rise in maintenance prescriptions and increased home deliveries, which were somewhat offset by lower acute prescription count to the tune of 4.9%.

During the reported quarter, adjusted EBITDA advanced 13% year over year to $151.6 million, driven by higher revenues and lower costs. Meanwhile, adjusted EBITDA margin remained flat at 2.5% in the quarter under review. In addition, SG&A expenses fell 1.7% year over year to $1,116.1 million.

Rite Aid Corporation Price, Consensus and EPS Surprise

Rite Aid Corporation Price, Consensus and EPS Surprise
Rite Aid Corporation Price, Consensus and EPS Surprise

Rite Aid Corporation price-consensus-eps-surprise-chart | Rite Aid Corporation Quote

Financial Status

Rite Aid ended the quarter with cash and cash equivalents of approximately $92.7 million, long-term debt (net of current maturities) of $3,506.7 million and total shareholders’ equity of $603 million.

Further, the company used cash for operating activities of $358 million in the fiscal second quarter. Rite Aid boasts liquidity of roughly $1.35 billion, which is likely to help it stay afloat during the pandemic.

Business Development

Management launched its new Elixir brand and remains focused on improving its curated solutions, products, clinical and digital capabilities. Apart from these, the company witnessed an increased membership in its Medicare Part D business.

Rite Aid’s new logo is likely to be launched by mid-2021. Also, the company is on track to revamp its stores, with already 200 stores complete by the second quarter. Moreover, it has expanded its COVID-19 testing sites to more than 300 locations across the United States.  Further, the riteaid.com website and mobile app have been redesigned with improved online shopping facilities for consumers.

Rite Aid has 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 will be completed by the end of fiscal 2021.

Fiscal 2021 Outlook

This Zacks Rank #3 (Hold) stock, which shares space with Walgreens WBA, has revised the fiscal 2021 guidance, keeping in mind the demand for flu immunizations, enhanced pharmacy network management at Elixir and cost savings. The company now expects revenues to be $23.5-$24 billion with same-store sales growth of 3-4%. The bottom line is envisioned between a loss of 67 cents and earnings of 9 cents. Capital expenditure is anticipated to be roughly $275 million. Also, it expects free cash flow of $110-$160 million.

Price Performance

In the past three months, shares of this company have lost 32.6% compared with the industry’s 8.2% decline.

Stocks to Consider

The Kroger Co. KR has an impressive long-term earnings growth rate of 6.2% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lowes Companies LOW, which presently carries a Zacks Rank #2, has an expected long-term earnings growth rate of 16.2%.

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