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Rite Aid (RAD) Stock Up on Q3 Earnings Beat, FY19 View Down

Rite Aid Corporation RAD reported third-quarter fiscal 2019 results, wherein the top and bottom lines improved on a year-over-year basis. Also, earnings came ahead of the Zacks Consensus Estimate but sales lagged the same. Further, management lowered its guidance for fiscal 2019. Nevertheless, shares of the company increased almost 10% during the after-market trading session on Dec 19.

Q3 in Detail

In the reported quarter, Rite Aid’s adjusted earnings came in at 1 cent per share, which outpaced the Zacks Consensus Estimate of a loss of 2 cents. The bottom line also came ahead of the break-even earnings per share reported a year ago.

Revenues improved 1.8% to $5,450.1 million but missed the Zacks Consensus Estimate of $5,484 million. At the Retail Pharmacy segment, third-quarter revenues rose 0.4% on account of an increase in same-store sales, partly offset by store closures. At the Pharmacy Services segment, the same metric increased 5.6% owing to increased Medicare Part D membership.

Rite Aid Corporation Price, Consensus and EPS Surprise

Retail Pharmacy same-store sales improved 1.6%, courtesy of a 3.1% increase in pharmacy sales and a 1.5% decrease in front-end sales. Notably, Pharmacy sales included a negative impact of nearly 108 basis points (bps) from the introduction of new generic drugs. Further, prescription count at comparable stores advanced 2.4%. Prescription sales constituted 67.6% of total drugstore sales.

Backed by increased pharmacy gross profit owing to rise in script count, Rite Aid’s adjusted EBITDA improved 0.5% year over year to $142.8 million. This was offset by lower front-end gross profit and rise in distribution costs related with the divestiture of a distribution center to Walgreens Boots Alliance WBA. Meanwhile, adjusted EBITDA margin declined almost 10 basis points to 2.6%.

Further, adjusted EBITDA at the Retail Pharmacy Segment totaled $101.2 million depicting a 0.5% decline from the prior-year quarter’s tally. At the Pharmacy Services Segment, the same amounted to $41.6 million, reflecting a rise of almost 3%.

Store Update

Rite Aid that shares space with CVS Health Corporation CVS, renovated 21 stores in the fiscal third quarter, bringing the company’s total wellness-store count to 1,748. Further, it shuttered one store during the reported quarter, consequently taking the store count to 2,525 as of Dec 1, 2018.

Other Developments

In a separate press release, Rite Aid and McKesson Corporation MCK announced an agreement to continue the pharmaceutical sourcing and distribution partnership for an additional 10 years through March 2029. Per the terms of the deal, McKesson will continue providing Rite Aid with sourcing and direct-to-store delivery for brand and generic pharmaceutical products. The partnership will provide Rite Aid with a combination of competitive drug pricing and operational flexibility, which will enhance shareholder value.

Financial Status

Rite Aid ended the fiscal third quarter with cash and cash equivalents of approximately $410 million, long-term debt (net of current maturities) of $3,394.5 million and total shareholders’ equity of $1,453.4 million.

Further, the company generated cash of $351.1 million from operating activities as of Dec 1, 2018.

Outlook

Rite Aid lowered its sales, same-store sales, adjusted EBITDA and earnings view and reiterated its capital expenditure forecasts for fiscal 2019. The company lowered its net loss expectations as well.

For fiscal 2019, Rite Aid continues to estimate sales of $21.8-$21.95 billion, with comps anticipated to increase in the range of 0.5-1%. Adjusted EBITDA is projected to be $545-$570 million. The company continues to anticipate capital expenditure of nearly $250 million for the fiscal year.

Earlier, Rite Aid had anticipated fiscal 2019 sales of $21.7-$22.1 billion, with comps anticipated in the range of flat to up 1%. Adjusted EBITDA was projected to be $540-$590 million.

Rite Aid now projects adjusted net (loss) income per share between a loss of 3 cents and loss of 1 cent compared with the prior guidance of adjusted net loss per share of 3 cents to income of 1 cent.

Price Performance

In the past three months, this Zacks Rank #3 (Hold) stock has plunged 35.1%, underperforming the industry’s 5.7% decline.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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CVS Health Corporation (CVS): Free Stock Analysis Report
 
Walgreens Boots Alliance, Inc. (WBA): Free Stock Analysis Report
 
Rite Aid Corporation (RAD): Free Stock Analysis Report
 
McKesson Corporation (MCK): Free Stock Analysis Report
 
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