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Rite Aid (RAD) Q2 Loss Wider Than Expected, Revenues Beat

Rite Aid Corporation RAD posted mixed second-quarter fiscal 2023 results, wherein the top line beat the Zacks Consensus Estimate while the bottom line missed the same. However, both metrics worsened from the respective year-ago fiscal period’s readings.

Shares of this currently Zacks Rank #4 (Sell) RAD have lost 28.9% in the past three months compared with the industry's decline of 19%.

Q2 Highlights

Rite Aid incurred an adjusted loss of 63 cents per share, wider than the adjusted loss of 41 cents recorded in the prior-year fiscal quarter. The Zacks Consensus Estimate was pegged at a loss of 56 cents per share.

Revenues declined 3.5% from the year-ago fiscal quarter’s tally to $5,901.1 million but surpassed the Zacks Consensus Estimate of $5,768 million. Sluggishness in both Retail Pharmacy and Pharmacy Services segments hurt sales.

In the fiscal second quarter, the Retail Pharmacy segment's revenues fell 1.1% due to a reduction in COVID-19 vaccines and testings as well as store closures, offset by higher acute and maintenance prescriptions. Retail Pharmacy same-store sales were up 5.6%, driven by an 8% rise in pharmacy sales, partly offset by the 0.3% dip in front-end same-store sales. Excluding cigarettes and tobacco products, front-end same-store sales inched up 0.2% from the year-ago fiscal period’s reading.

Prescription count at the same-store sales, adjusted to 30-day equivalent, rose 3.1% on the back of non-COVID-19 prescriptions (up 2.1%), acute prescription (up 5.3%) and maintenance prescriptions (up 1.2%). Prescription sales constituted 70.7% of the overall drugstore sales. Total store count at the end of the reported quarter was 2,352.

In the Pharmacy Services segment, revenues declined 9% due to client loss announced earlier and reduced Elixir Insurance membership.

In the reported quarter, adjusted EBITDA plunged 26.1% from the year-ago fiscal period’s level to $78.5 million. The adjusted EBITDA margin contracted 40 bps to 1.3% in the quarter under review. SG&A expenses decreased 5.9% from the year-ago fiscal period’s reading to $1,193.6 million.

Financial Status

Rite Aid ended the reported quarter with cash and cash equivalents of $46.8 million, long-term debt (net of current maturities) of $3,222.7 million and a total shareholders' equity deficit of $336.4 million.

For fiscal 2023, capital expenditure is forecast to be $225 million, which is to be utilized for investments in digital capabilities, technology, prescription file purchases, distribution center automation and store remodels. Rite Aid also expects to generate a positive free cash flow in fiscal 2023.

FY23 Outlook

Management reiterated its fiscal 2023 expectations and trimmed view for net loss and Adjusted EBITDA. Rite Aid’s revenues are anticipated to be $23.6-$24 million. The Retail Pharmacy Segment’s revenues are likely to be $17.35-$17.65. The Pharmacy Services Segment’s revenues are expected to be $6.25-$6.35 billion.

Net loss is likely to be between $477.3 million and $520.3 million. Adjusted EBITDA is anticipated between $450 million and $490 million compared with the earlier view of $460-$500 million, induced by the expectations of cautious consumer demand and supply-chain headwinds. The Retail Pharmacy Segment’s Adjusted EBITDA is predicted between $305 million and $335 million, while the Pharmacy Services Segment’s Adjusted EBITDA is projected in the band of $145-$155 million.

Adjusted net loss per share is now envisioned between $1.52 and 97 cents compared with the loss of 66 cents-$1.19 predicted earlier.

Solid Retail Bets

We highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass TGLS, Ulta Beauty ULTA and CVS Health CVS.

Tecnoglass manufactures and sells architectural glass and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy).

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

The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 28.2% and 47.7%, respectively, from the corresponding year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 24.4%, on average.

Ulta Beauty, a leading beauty retailer in the United States, currently has a Zacks Rank #2 (Buy). ULTA has a trailing four-quarter earnings surprise of 49.8%, on average.

The Zacks Consensus Estimate for Ulta Beauty’s current financial-year sales suggests growth of 10.4% from the corresponding year-ago reported figures. ULTA has an expected EPS growth rate of 10.7% for three-five years.

CVS Health, a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care, currently has a Zacks Rank of 2. The company has a trailing four-quarter earnings surprise of 6.7%, on average. Shares of CVS have risen 7% in the past three months.

The Zacks Consensus Estimate for CVS Health’s current financial-year sales and earnings per share suggests growth of 6.6% and 1.1%, respectively, from the corresponding year-ago reported numbers. CVS has an expected EPS growth rate of 7.7% for three-five years.

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