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Rite Aid (RAD) Down 9.1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Rite Aid (RAD). Shares have lost about 9.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Rite Aid due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Rite Aid Beats Earnings & Revenues Estimates in Q3

Rite Aid posted impressive third-quarter fiscal 2021 results. Strength in Elixir, rise in pharmacy sales and robust online performance aided quarterly results. Further, it remains on track with its RxEvolution strategy. Additionally, cost-cutting actions contributed to quarterly growth.

Q3 in Detail

The company delivered adjusted earnings of 40 cents per share, which came ahead of the Zacks Consensus Estimate of a loss of a penny. However, the bottom line declined 25.9% from the year-ago quarter’s figure of 54 cents. This might be due to weak adjusted EBITDA and elevated costs related to lease termination and impairment, which more than offset reduced interest expenses and contribution from the sale of its distribution center at Perryman, MD.

Revenues grew 12% to $6,117 million and surpassed the Zacks Consensus Estimate of $5,846 million. This uptick was mainly due to solid performance in the Retail Pharmacy and Pharmacy Services segments. Apart from these, the company’s top line gained from strength in Elixir, driven by 29% increase in Medicare Part D memberships which more than offset drab acute script volumes.

During the quarter, Retail Pharmacy segment revenues grew 5.1% due to higher same-store sales. In the Pharmacy Services segment, revenues rose 29.2% owing to a rise in Medicare Part D membership. Retail pharmacy same-store sales advanced 4.3%, thanks to a 6.1% rise in pharmacy sales. Excluding cigarettes and tobacco products, front-end same-store sales rose 0.3% on the back of growth in certain product categories including immunity, first aid and paper products. Further, prescription count at same-store sales, adjusted to 30-day equivalents, grew 3.1% on the back of a rise in maintenance prescriptions and increased home deliveries, which were somewhat offset by lower acute prescription count to the tune of 1.9%.

Online revenues skyrocketed 225% year over year in the quarter under review on the back of revamped website and mobile app. Also, strategic partnerships with for the sale of its products, and Instacart for home delivery, acted as upsides.

During the reported quarter, adjusted EBITDA fell 13.1% year over year to $137.4 million, driven by higher revenues and lower costs. Meanwhile, adjusted EBITDA margin contracted 60 bps at 2.5% in the quarter under review. In addition, SG&A expenses grew 1.9% year over year to $1,156.4 million.

Financial Status

Rite Aid ended the quarter with cash and cash equivalents of approximately $50.8 million, long-term debt (net of current maturities) of $3,200.6 million and total shareholders’ equity of $610.5 million.

Further, the company generated cash from operating activities of $222.7 million in fiscal third quarter. Rite Aid boasts liquidity of roughly $1.6 billion, which is likely to help it stay afloat during the pandemic.

Business Development

During the quarter, Rite Aid launched its new brand and logo. Some other notable efforts include improving product mix, revamping more than 700 stores, launching three new Store of the Future prototypes and integrating two legacy PBMs. Further, the company redesigned its website and mobile app. Also, it is on track to launch the first phase of its new member portal at Elixir. Apart from these, Rite Aid’s pilot stores have been performing well in terms of sales and margins, following which it now intends to rollout the next phase of these stores in the fiscal fourth quarter.

Management has already reached the milestone of 1 million COVID-19 tests in partnership with the U.S. Department of Health and Human Services. Going ahead, it is joining forces with the CDC to distribute vaccines for the second phase of the rollout.

Fiscal 2021 Outlook

The company revised its fiscal 2021 guidance, keeping in mind lower Medicare Part D membership, the demand for flu immunizations, enhanced pharmacy network management at Elixir and cost savings. The company now expects revenues to be $23.9-$24.2 billion with same-store sales growth of 3.5-4.5%. The bottom line is envisioned between 45-85 cents. Moreover, adjusted EBITDA is expected to be between $490 to $520 million. Capital expenditure is anticipated to be roughly $325 million. Also, it expects free cash flow of $50-$100 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 109.26% due to these changes.

VGM Scores

Currently, Rite Aid has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Rite Aid has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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