Will Rite Aid's (RAD) Strategies Continue to Aid Q4 Earnings?
Rite Aid Corporation RAD is slated to report top and bottom-line numbers for fourth-quarter fiscal 2020 on Apr 16. Investors continue to be optimistic about the company’s growth strategy, which focuses on leveraging unique opportunities such as EnvisionRxOptions, enhancing front-end channels and transforming processes to deliver operational efficiency. Moreover, its efforts to improve customer experience through wellness remodels and improved distribution system are likely to have bolstered performance in the to-be-reported quarter.
The Zacks Rank #2 (Buy) stock has been displaying a strong momentum, with shares gaining 6.4% in the past three months against the industry’s 19.2% decline.
However, weak front-end sales have been hurting the company’s top line over the past few quarters. Softness in tobacco, owing to regulation changes that restricted selling tobacco in some New York stores, and in over-the-counter cough-cold and flu products has been affecting front-end performance. Due to lower front-end same-store sales, Rite Aid has been reporting weak adjusted EBITDA for a while. This coupled with projections of lower prescription reimbursement rates might have hurt the company’s performance in the to-be-reported quarter.
Let’s discuss the company’s key prospects and their likely contributions to earnings this time around.
Growth Efforts
Within its growth strategy, Rite Aid has been investing in the expansion of EnvisionRxOptions, especially its services, technologies and clinical offerings. This has been contributing to revenues, driven by increased Medicare Part D membership and improved pharmacy network. Management is optimistic about the company’s growth on EnvisionRxOptions as well as health and wellness offerings.
Further, Rite Aid has been focused on strengthening foothold in mid-market PBM, innovation across its retail and mail-order pharmacy channels, enhancement of in-store experience by curated digital offerings, improved merchandises and rebranding of image with a new logo. In addition, it has been keen on capturing opportunities through diverse brand offerings. Notably, the company partnered with United Natural Foods, Inc. UNFI for introducing the Wild Harvest brand in Rite Aid stores, which has been boosting Rite Aid’s wellness offerings.
With a view to boost the demand for CBD products, the company has also started selling CBD creams, lotions and lip balms at certain stores. Management expects all such moves to yield results in the quarters ahead, including the fiscal fourth quarter.
Simultaneously, Rite Aid had been remodeling its wellness stores to increase its market share in an extremely competitive industry. It also shifted e-commerce fulfillment from a third-party provider to its distribution network to enhance the customer experience. This reduced fulfillment lead time, lowered costs and helped increase online offering by 25%. Additionally, the company has been enhancing home delivery through the partnership with Instacart. The technology-driven, on-demand delivery service should have strengthened Rite Aid’s omni-channel capabilities, and provided increased convenience and value to customers. The efforts are likely to get reflected in the company’s top-line number in the to-be-reported quarter.
Growing Prescription Count Trend
Rite Aid has been witnessing growth in the prescription count, which has remained a key sales driver. Notably, the company’s prescription count has been benefiting from increased immunizations and strength in its clinical pharmacy services. Continued prescription count growth is likely to have aided the top line in the fiscal fourth quarter.
The Zacks Consensus Estimate for fiscal fourth-quarter revenues is pegged at $5,659 million, indicating 5.2% growth from the prior-year quarter’s reported number. (Read More: Factors Setting the Tone for Rite Aid's Q4 Earnings)
Looking for Other Favorable Stocks? Check These
Chico's FAS, Inc. CHS has an expected long-term earnings growth rate of 15%. The company carries a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Costco Wholesale Corporation COST, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 8.4%.
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