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Rite Aid (RAD) Q2 Loss Narrower Than Expected, Revenues Miss

Rite Aid Corporation RAD posted second-quarter fiscal 2022 results, wherein adjusted loss was slightly narrower than the Zacks Consensus Estimate, while sales lagged the same. Continued strength in its underlying business, accelerated COVID-19 vaccine program, solid performance at Elixir, and enhanced retail and digital experiences aided the quarterly results. The company remains committed to providing lower healthcare costs, better customer engagement and personalized services.

However, shares of this Zacks Rank #3 (Hold) stock fell more than 6% on Sep 23. In the past three months, shares of the company have lost 13.2% compared with the industry’s 2.4% decline.

Q2 in Detail

The company delivered an adjusted loss of 41 cents per share against adjusted earnings of 25 cents in the prior-year quarter. However, the figure was slightly narrower than the Zacks Consensus Estimate of a loss of 42 cents.

Revenues grew 2.2% to $6,113 million but missed the Zacks Consensus Estimate of $6,246 million. The uptick was mainly due to the solid performance in the Retail Pharmacy, which more than offset the sluggishness in the Pharmacy Services segment.

In the quarter, the Retail Pharmacy segment’s revenues grew 6.5%, driven by gains from the acquisition of Bartell and same-store sales growth. Retail Pharmacy same-store sales were up 2.6%, driven by a 5% rise in pharmacy sales, which offset a 2.8% decline in front-end same-store sales. Excluding cigarettes and tobacco products, front-end same-store sales decreased 2.4%. However, the metric rose 3% on a two-year stack basis, owing to a recovery in core categories, including vitamins, color cosmetics and baby care.

Prescription count at same-store sales, adjusted to 30-day equivalents, rose 7.1% on the back of COVID-19 vaccinations, higher acute prescriptions (up 1.5%) and maintenance prescriptions (up 2.4%).

In the Pharmacy Services segment, revenues fell 6.9% due to lower memberships in the PBM business and reduced Elixir Insurance membership.

Online revenues skyrocketed 183% year over year in the quarter under review on the back of continued strength in on-demand delivery, third-party marketplaces, and buy online, pick up at store options. Management partnered with Shipt for same-day delivery of non-prescription products in the quarter under review. The company also revealed plans to launch a curbside service by October.

In the reported quarter, adjusted EBITDA declined nearly 30% year over year to $106.2 million. This is mainly due to higher SG&A expenses, costs related to the Bartell acquisition, and other costs incurred to drive COVID-19 vaccines, which partly offset the rise in gross profit and higher prescription volume in the Retail Pharmacy segment. The adjusted EBITDA margin contracted 80 bps to 1.7% in the quarter under review. SG&A expenses grew 13.6% year over year to $1,267.8 million.


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Financial Status

Rite Aid ended the reported quarter with cash and cash equivalents of $146.6 million, long-term debt (net of current maturities) of $3,114.4 million, and total shareholders’ equity of $505.3 million. Capital expenditure is likely to be $300 million in fiscal 2022. Rite Aid also boasts strong liquidity of $1.7 billion.

Fiscal 2022 Outlook

Driven by the rising demand for COVID-19 vaccine and testing, management lifted its adjusted EBITDA view for fiscal 2022. Adjusted EBITDA is likely to be $460-$500 million, up from the earlier mentioned $440-$480 million.

For fiscal 2022, the company expects sales of $25.1-$25.5 billion, with pharmacy services segment sales of $7.7-$7.8 million. Adjusted net loss is envisioned to be 90-53 cents, which compared unfavorably with the previously mentioned loss of 79-24 cents.

Business Developments

Management administered 2.5 million COVID-19 vaccines in the reported quarter, driven by continued and rising customer demand. It also witnessed higher COVID-19 testing demand. The company remains on track with plans to invest in its online scheduling platform, which will allow customers to schedule appointments for COVID-19, flu and other vaccines. Rite Aid also noted that it completed the refreshed packaging and brand design of Pawtown, which is part of its pet unit, along with the redesign of its new baby brand, both of which are likely to be launched this fall.

Rite Aid Corporation Price, Consensus and EPS Surprise


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

Better-Ranked Stocks in the Retail Space

Abercrombie & Fitch ANF presently sports a Zacks Rank #1 (Strong Buy). It has an expected long-term earnings growth rate of 18%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Children’s Place PLCE has a long-term expected earnings growth rate of 8% and it currently flaunts a Zacks Rank #1.

Foot Locker FL, a Zacks Rank #1 stock at present, has an expected long-term earnings growth rate of 4%.

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Rite Aid Corporation (RAD): Free Stock Analysis Report
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