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Rite Aid's (RAD) Q1 Earnings Beat Estimates, Sales Miss

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Rite Aid Corporation RAD posted first-quarter fiscal 2022 results, wherein earnings beat the Zacks Consensus Estimate while sales lagged the same. However, both metrics improved year over year. With the reopening of economic activities across the United States, the company witnessed momentum in many of its businesses leading to sequential improvement during the fiscal first quarter. Also, management is progressing well with its RxEvolution strategy. Apart from these, the company noted that it administered roughly 4.7 million COVID-19 vaccines in the quarter under review.

Its front-end business seems encouraging with the recovery in demand for categories like cosmetics and seasonal. In its e-commerce business, Rite Aid partnered with DoorDash during the quarter to offer same-day delivery of non-prescription health, convenience and wellness essentials, and is receiving positive feedback for the same. Additionally, the company opened seven new flagship stores, bringing the total flagship store count to 10.

Q1 in Detail

The company delivered adjusted earnings of 38 cents per share, surpassing the Zacks Consensus Estimate of 22 cents. The figure also compared favorably with the year-ago quarter’s loss of 4 cents.

Revenues grew 2.2% to $6,161 million but missed the Zacks Consensus Estimate of $6,214 million. This uptick was mainly due to the solid performance in the Retail Pharmacy, which more than offset the sluggishness in the Pharmacy Services segment.

During the quarter, Retail Pharmacy segment revenues grew 5.5%, driven by gains from the acquisition of Bartell and same-store sales growth. Retail Pharmacy same-store sales inched up 1.4%, driven by an 8.2% rise in pharmacy sales, which offset a 12% decline in front-end same-store sales. Excluding cigarettes and tobacco products, front-end same-store sales decreased 11.5% due to lower demand for general cleaning products, sanitizers, wipes, paper products, liquor and over-the-counter products. Further, prescription count at same-store sales, adjusted to 30-day equivalents, rose 11.2% on the back of COVID-19 vaccinations, higher acute prescriptions (up 3%) and maintenance prescriptions (up 2%).

In the Pharmacy Services segment, revenues fell 5.3% due to lower Medicare Part D memberships and reduced customer count.

Online revenues skyrocketed 190% year over year in the quarter under review on the back of expanded delivery facilities.

During the reported quarter, adjusted EBITDA grew 29.3% year over year to $138.9 million. This is mainly due to improved gross profit stemming from higher prescription volumes in the retail pharmacy segment. Adjusted EBITDA margin expanded 50 bps to 2.3% in the quarter under review. In addition, SG&A expenses grew 4% year over year to $1,245.4 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 $118.5 million, long-term debt (net of current maturities) of $3,014.5 million and total shareholders’ equity of $604 million. Capital expenditures are likely to be roughly $300 million in fiscal 2022, which will be invested in digital, store remodeling initiatives and file buys.

Further, the company generated cash from operating activities of $13.9 million in the fiscal first quarter. Rite Aid also boasts strong liquidity of roughly $1.7 billion.

Fiscal 2022 Outlook

For fiscal 2022, the company expects sales to be $25.1-$25.5 billion, with pharmacy services segment sales of $7.9-$8 million. Adjusted net loss is envisioned to be 79-24 cents. Further, adjusted EBITDA is likely to be $440-$480 million.

The company doesn’t anticipate its stores to be further exposed to any COVID-led lockdowns in fiscal 2022. It expects Elixir revenues to remain drab due to lower customer count and planned decreases in Medicare Part D lives. Moreover, acute scripts and front-end over-the-counter sales are projected to improve year over year but remain below historical levels. Higher wages and increased investments to drive revenues further might weigh on retail SG&A expenses.

In the past three months, shares of the Zacks Rank #5 (Strong Sell) company have declined 7.4% against the industry’s 8.2% growth.

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Stocks in the Retail Space

L Brands LB currently has a long-term expected earnings growth rate of 13% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tractor Supply Company TSCO, with a Zacks Rank #2, has an expected long-term earnings growth rate of 9%.

Five Below FIVE, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 32.6%.

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