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Rite Aid (RAD) Stock Up on Better-than-Expected Q4 Results
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Rite Aid Corporation posted fourth-quarter fiscal 2017 results, wherein both top and bottom lines surpassed estimates, with sales breaking its five-quarter long negative surprise trend. Shares of this drug-store retailer gained 6.4% following the better-than-expected results, while its long-awaited merger with major rival Walgreens Boots Alliance Inc. (WBA - Free Report) remains doubtful.
Well, this adds a bright spot to Rite Aid’s otherwise dismal stock performance history. Evidently, this Zacks Rank #5 (Strong Sell) stock slumped 50.8% in the last one year, underperforming the Zacks categorized Retail – Pharmacies and Drug Stores industry’s drop of 12.9%.
Q4 Highlights
On an adjusted basis, Rite Aid posted breakeven results in the fourth quarter that fared better than the Zacks Consensus Estimate of a loss of 1 cent. However, the bottom line compared unfavorably with the year-ago adjusted earnings of 7 cents.
While Rite Aid benefited from an additional week in the fourth quarter, the company continued to battle unfavorable reimbursement rates, which could not be offset by lower drug costs. This, in turn had an adverse impact on the company’s performance.
Moving to the top line, the company’s revenues advanced 3.3% to $8,541 million, also exceeding the Zacks Consensus Estimate of $8,331 million. During the quarter, the company’s top line gained from strength in the Retail Pharmacy segment, while revenues from the Pharmacy Services segment disappointed.
Deeper Insight
Sales at the Retail Pharmacy Segment rose 3.3% to $7,120.4 million, aided by the additional week, partly offset by lower comparable store sales (comps). Sales at the Pharmacy Services segment, which was acquired on Jun 24, 2015, dipped 1.3% to $1,510.8 million.
The company’s comps declined 3%, owing to a 4.3% fall in pharmacy comps along with a 0.3% dip in front-end comps. Pharmacy comps included a negative impact of 246 basis points (bps) due to the introduction of new generic drugs. Also, prescription count at comparable stores dipped 0.3%. Prescription sales constituted 67.1% of total drugstore sales and third-party prescription sales accounted for 98.4% of pharmacy sales.
Rite Aid’s adjusted EBITDA slumped about 31% year over year to $264.3 million, whereas adjusted EBITDA margin contracted 150 bps to 3.1%. The decline in adjusted EBITDA, in dollar terms, was mainly due to a fall in adjusted EBITDA contributions from Retail Pharmacy segment owing to lower pharmacy gross profit stemming from reduced reimbursement rate and script count, somewhat compensated by the additional week and efficient cost curtailment. Also, improvement in the Pharmacy Services segment gross profit somewhat cushioned the adjusted EBITDA.
Financials
Rite Aid, which trails CVS Health Corporation (CVS - Free Report) in size, ended the quarter with cash and cash equivalents of $245.4 million, long-term debt (excluding current maturities) of $7,263.3 million and total shareholders’ equity of $614.1 million.
In fiscal 2017, the company used cash flow of $225.9 million in operating activities and incurred gross capital expenditure of nearly $489.4 million.
Store Update
Rite Aid stores continue to renovate, with 89 outlets remodeled, two expanded and five relocated in fourth-quarter fiscal 2017. Additionally, the company opened two stores in the quarter. This brings the company’s total wellness stores count to 2,418. Further, the company shut 13 stores during the reported quarter.
Including this, Rite Aid remodeled 348, expanded two and relocated 24 outlets in fiscal 2017. Further, the company opened 12 stores and acquired three stores during the fiscal, while shuttering 40 stores down. With this, Rite Aid operates 4,536 stores across 31 states and the District of Columbia as of Mar 4, 2017.
Also, the company opened 21 clinics in fiscal 2017 (including seven opened in the fourth quarter), taking its total clinics count to 99.
Merger Update
After the delay and amendment announced on Jan 30, 2017, Rite Aid and Walgreens continue to be in constant talks with the Federal Trade Commission, to gain approval for their long-pending merger that was first announced in Oct 2015. While both the companies are trying all means to conclude the deal by Jul 31, 2017 (the latest deadline), there’s still no certainty about winning all regulatory approvals required for the transaction.
A deeper insight at the amendment reveals that Walgreens and Rite Aid lowered the per share price for the deal based on the number of stores that need to be divested. Further, per the new terms, Walgreens will be required to divest up to 1,200 Rite Aid stores in order to engage in talks with regulators. This marks an increase of 200 stores from the previously targeted store divestitures of 1,000 stores. The exact price of the deal will be determined on the number of shares divested to gain regulatory approvals.
Well, if the deal is concluded, it will create a drugstore behemoth with a superior network that will cater to more health and wellness solutions both in stores and online. Additionally, the combined company formed from the Walgreens-Rite Aid merger will operate over 12,000 stores in the U.S. and fill over one billion prescription drugs every day.
While the delay is weighing upon Rite Aid’s performance, management remains focused on its cost-control efforts and other growth strategies to enhance future performance.
Wal-Mart has long-term earnings per share growth rate of 6.9%. Also, the company’s earnings have outperformed the Zacks Consensus Estimate by an average of 4.8% in the trailing four quarters.
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Rite Aid (RAD) Stock Up on Better-than-Expected Q4 Results
Rite Aid Corporation posted fourth-quarter fiscal 2017 results, wherein both top and bottom lines surpassed estimates, with sales breaking its five-quarter long negative surprise trend. Shares of this drug-store retailer gained 6.4% following the better-than-expected results, while its long-awaited merger with major rival Walgreens Boots Alliance Inc. (WBA - Free Report) remains doubtful.
Well, this adds a bright spot to Rite Aid’s otherwise dismal stock performance history. Evidently, this Zacks Rank #5 (Strong Sell) stock slumped 50.8% in the last one year, underperforming the Zacks categorized Retail – Pharmacies and Drug Stores industry’s drop of 12.9%.
Q4 Highlights
On an adjusted basis, Rite Aid posted breakeven results in the fourth quarter that fared better than the Zacks Consensus Estimate of a loss of 1 cent. However, the bottom line compared unfavorably with the year-ago adjusted earnings of 7 cents.
While Rite Aid benefited from an additional week in the fourth quarter, the company continued to battle unfavorable reimbursement rates, which could not be offset by lower drug costs. This, in turn had an adverse impact on the company’s performance.
Moving to the top line, the company’s revenues advanced 3.3% to $8,541 million, also exceeding the Zacks Consensus Estimate of $8,331 million. During the quarter, the company’s top line gained from strength in the Retail Pharmacy segment, while revenues from the Pharmacy Services segment disappointed.
Deeper Insight
Sales at the Retail Pharmacy Segment rose 3.3% to $7,120.4 million, aided by the additional week, partly offset by lower comparable store sales (comps). Sales at the Pharmacy Services segment, which was acquired on Jun 24, 2015, dipped 1.3% to $1,510.8 million.
The company’s comps declined 3%, owing to a 4.3% fall in pharmacy comps along with a 0.3% dip in front-end comps. Pharmacy comps included a negative impact of 246 basis points (bps) due to the introduction of new generic drugs. Also, prescription count at comparable stores dipped 0.3%. Prescription sales constituted 67.1% of total drugstore sales and third-party prescription sales accounted for 98.4% of pharmacy sales.
Rite Aid’s adjusted EBITDA slumped about 31% year over year to $264.3 million, whereas adjusted EBITDA margin contracted 150 bps to 3.1%. The decline in adjusted EBITDA, in dollar terms, was mainly due to a fall in adjusted EBITDA contributions from Retail Pharmacy segment owing to lower pharmacy gross profit stemming from reduced reimbursement rate and script count, somewhat compensated by the additional week and efficient cost curtailment. Also, improvement in the Pharmacy Services segment gross profit somewhat cushioned the adjusted EBITDA.
Financials
Rite Aid, which trails CVS Health Corporation (CVS - Free Report) in size, ended the quarter with cash and cash equivalents of $245.4 million, long-term debt (excluding current maturities) of $7,263.3 million and total shareholders’ equity of $614.1 million.
In fiscal 2017, the company used cash flow of $225.9 million in operating activities and incurred gross capital expenditure of nearly $489.4 million.
Store Update
Rite Aid stores continue to renovate, with 89 outlets remodeled, two expanded and five relocated in fourth-quarter fiscal 2017. Additionally, the company opened two stores in the quarter. This brings the company’s total wellness stores count to 2,418. Further, the company shut 13 stores during the reported quarter.
Including this, Rite Aid remodeled 348, expanded two and relocated 24 outlets in fiscal 2017. Further, the company opened 12 stores and acquired three stores during the fiscal, while shuttering 40 stores down. With this, Rite Aid operates 4,536 stores across 31 states and the District of Columbia as of Mar 4, 2017.
Also, the company opened 21 clinics in fiscal 2017 (including seven opened in the fourth quarter), taking its total clinics count to 99.
Merger Update
After the delay and amendment announced on Jan 30, 2017, Rite Aid and Walgreens continue to be in constant talks with the Federal Trade Commission, to gain approval for their long-pending merger that was first announced in Oct 2015. While both the companies are trying all means to conclude the deal by Jul 31, 2017 (the latest deadline), there’s still no certainty about winning all regulatory approvals required for the transaction.
A deeper insight at the amendment reveals that Walgreens and Rite Aid lowered the per share price for the deal based on the number of stores that need to be divested. Further, per the new terms, Walgreens will be required to divest up to 1,200 Rite Aid stores in order to engage in talks with regulators. This marks an increase of 200 stores from the previously targeted store divestitures of 1,000 stores. The exact price of the deal will be determined on the number of shares divested to gain regulatory approvals.
Well, if the deal is concluded, it will create a drugstore behemoth with a superior network that will cater to more health and wellness solutions both in stores and online. Additionally, the combined company formed from the Walgreens-Rite Aid merger will operate over 12,000 stores in the U.S. and fill over one billion prescription drugs every day.
While the delay is weighing upon Rite Aid’s performance, management remains focused on its cost-control efforts and other growth strategies to enhance future performance.
A better-ranked stock in the retail sector is Wal-Mart Stores, Inc. (WMT - Free Report) with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Wal-Mart has long-term earnings per share growth rate of 6.9%. Also, the company’s earnings have outperformed the Zacks Consensus Estimate by an average of 4.8% in the trailing four quarters.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>