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Bear of the Day: Rite Aid (RAD)

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Headquartered in Camp Hill, PA, Rite Aid Corporation (RAD - Free Report) is the third largest retail drugstore in the US, based on revenues and number of stores. The company operates over 4,500 stores in 31 states across the country and in the District of Columbia.

Weak Results

Rite Aid reported adjusted loss of $0.05 per share for Q1 2018 ended June 3, worse than the Zacks Consensus Estimate of a loss of $0.02, as also earnings of $0.02 reported a year ago. Revenues fell 4.9% to $7,781.5 million, meeting our estimate.

“The negative trends in our pharmacy business that we saw during fiscal 2017 continued into the first quarter of fiscal 2018. Same-store sales in the retail business declined 3.9% from the prior year, consisting of a 1.5% decrease in front-end sales and a 5% decrease in pharmacy sales. Comparable script count decreased 1.1% on a 30-day adjusted basis,” Said the CFO.

Merger Agreement with Walgreens Terminated; Shares Plunge

The company announced that based upon feedback received from the FTC, they believe that the FTC would not approve the merger, and hence both sides mutually agreed to terminate the merger agreement. As Walgreens and Rite Aid are the second and third largest drugstore chains in the US, the FTC believed the merger could give rise to a duopoly and hurt competition.

Instead of merger, they entered into an agreement with Walgreens to sell 2,186 stores for $5.18 billion in cash.

Shares plunged more than 25% after the announcement.

Falling Estimates

Analysts have slashed their estimates for the company after weak results and merger termination.  Zacks Consensus Estimates for the current and next fiscal year have fallen to negative $0.08 per share and negative $0.03 per share from negative $0.03 and $0.02 respectively, before the results.

The company has missed in two out of past four quarters and just met in one. The average negative quarterly surprise for the past four quarters is 20.83%.


The Bottom Line


Apart from Zacks Rank #5 (Strong Sell), industry rank in bottom 9% and sector rank in bottom 6% suggests continued underperformance. They stock is down about 71% year-to-date but a rebound doesn’t appear likely soon.

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