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Rite Aid (RAD) Q3 Earnings Lag, Walgreens Merger on Track
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Rite Aid Corporation posted dismal third-quarter fiscal 2016 results, wherein both the top and the bottom line lagged estimates. The quarterly results also deteriorated year over year. The drab results, however, had a negligible impact on the stock, as investors eagerly await the pending buyout of Rite Aid by major rival Walgreens Boots Alliance Inc. (WBA - Free Report) .
Further, the company flaunts an impressive stock performance history, evident from the way it has outdone the Zacks categorized Retail – Drug Stores industry, year to date. Evidently, the company has jumped 7.7% on a year-to-date basis, when the industry was down 10.3%.
Q3 Highlights
This Drug-store retailer’s adjusted earnings of 2 cents a share plunged 75% from the year-ago period, and also missed the Zacks Consensus Estimate by a penny. The decline in the bottom line was mainly attributed to a fall in adjusted EBITDA, which was somewhat compensated by lower taxes.
While results benefitted from the company’s front-end business, solid cost control and sustained growth witnessed at EnvisionRx (the company’s pharmacy benefit manager), unfavorable reimbursement rates remained a major hurdle for the company. Management also expects the reimbursement rates to remain a pressure throughout the rest of fiscal 2016.
Moving to the top line, the company’s revenues dipped 0.8% to $8,089.7 million, also falling short of the Zacks Consensus Estimate of $8,229.6 million. During the quarter, the company’s top line gained from strength in the Pharmacy Services segment, while revenues from the Retail Pharmacy segment disappointed.
Deeper Insight
Sales at the Retail Pharmacy Segment fell 3.1% to $6,535.3 million due to lower comparable store sales (comps). Sales at the Pharmacy Services segment, which was acquired on Jun 24, 2015, improved 9.7% to $1,645.8 million.
The company’s comps declined 3.4%, owing to a 4.7% fall in pharmacy comps along with a 0.4% drop in front-end comps. Pharmacy comps included a negative impact of 182 basis points (bps) due to the introduction of new generic drugs. Also, prescription count at comparable stores dipped 2.4%. Prescription sales constituted 68.9% of total drugstore sales and third-party prescription sales accounted for 98.2% of pharmacy sales.
Rite Aid’s adjusted EBITDA slumped 26.6% year over year to $274.1 million, whereas adjusted EBITDA margin contracted 120 bps to 3.4%. 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, made partly by a rise in front end gross profit. Further, strong numbers at the Pharmacy Services segment 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 $220 million, long-term debt (excluding current maturities) of $7,208.3 million and total shareholders’ equity of $646.1 million.
In third-quarter fiscal 2017, the company used cash flow of $152.6 million in operating activities and incurred gross capital expenditure of nearly $108.1 million.
Store Update
Rite Aid stores continue to renovate, with 95 outlets remodeled and nine relocated in the fiscal third quarter. Additionally, the company opened three stores. This brings the company’s total wellness stores count to 2,322. Further, the company acquired one store and shut seven stores during the reported quarter. With this, Rite Aid operates 4,547 stores across 31 states and the District of Columbia as of Nov 26, 2016. Additionally, the company opened two clinics in the quarter, taking its total clinics count to 92.
Merger Update
Earlier this week, Rite Aid and Walgreens inked a deal to sell 865 Rite Aid stores and some assets to Fred's, Inc. . This agreement is aimed to satisfy antitrust concerns related to Rite Aid’s long awaited acquisition by Walgreens, which was announced in Oct 2015 and is expected to close on Jan 27, 2016. In this regard, Fred’s agreed to buy Rite Aid’s stores and assets for $950 million in cash. Per the deal, if the Federal Trade Commission demands any more divestitures, Fred’s will have to buy additional Rite Aid stores, following Walgreen’s approval.
Rite Aid and Walgreens expect the merger to 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.
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Rite Aid (RAD) Q3 Earnings Lag, Walgreens Merger on Track
Rite Aid Corporation posted dismal third-quarter fiscal 2016 results, wherein both the top and the bottom line lagged estimates. The quarterly results also deteriorated year over year. The drab results, however, had a negligible impact on the stock, as investors eagerly await the pending buyout of Rite Aid by major rival Walgreens Boots Alliance Inc. (WBA - Free Report) .
Further, the company flaunts an impressive stock performance history, evident from the way it has outdone the Zacks categorized Retail – Drug Stores industry, year to date. Evidently, the company has jumped 7.7% on a year-to-date basis, when the industry was down 10.3%.
Q3 Highlights
This Drug-store retailer’s adjusted earnings of 2 cents a share plunged 75% from the year-ago period, and also missed the Zacks Consensus Estimate by a penny. The decline in the bottom line was mainly attributed to a fall in adjusted EBITDA, which was somewhat compensated by lower taxes.
RITE AID CORP Price, Consensus and EPS Surprise
RITE AID CORP Price, Consensus and EPS Surprise | RITE AID CORP Quote
While results benefitted from the company’s front-end business, solid cost control and sustained growth witnessed at EnvisionRx (the company’s pharmacy benefit manager), unfavorable reimbursement rates remained a major hurdle for the company. Management also expects the reimbursement rates to remain a pressure throughout the rest of fiscal 2016.
Moving to the top line, the company’s revenues dipped 0.8% to $8,089.7 million, also falling short of the Zacks Consensus Estimate of $8,229.6 million. During the quarter, the company’s top line gained from strength in the Pharmacy Services segment, while revenues from the Retail Pharmacy segment disappointed.
Deeper Insight
Sales at the Retail Pharmacy Segment fell 3.1% to $6,535.3 million due to lower comparable store sales (comps). Sales at the Pharmacy Services segment, which was acquired on Jun 24, 2015, improved 9.7% to $1,645.8 million.
The company’s comps declined 3.4%, owing to a 4.7% fall in pharmacy comps along with a 0.4% drop in front-end comps. Pharmacy comps included a negative impact of 182 basis points (bps) due to the introduction of new generic drugs. Also, prescription count at comparable stores dipped 2.4%. Prescription sales constituted 68.9% of total drugstore sales and third-party prescription sales accounted for 98.2% of pharmacy sales.
Rite Aid’s adjusted EBITDA slumped 26.6% year over year to $274.1 million, whereas adjusted EBITDA margin contracted 120 bps to 3.4%. 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, made partly by a rise in front end gross profit. Further, strong numbers at the Pharmacy Services segment 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 $220 million, long-term debt (excluding current maturities) of $7,208.3 million and total shareholders’ equity of $646.1 million.
In third-quarter fiscal 2017, the company used cash flow of $152.6 million in operating activities and incurred gross capital expenditure of nearly $108.1 million.
Store Update
Rite Aid stores continue to renovate, with 95 outlets remodeled and nine relocated in the fiscal third quarter. Additionally, the company opened three stores. This brings the company’s total wellness stores count to 2,322. Further, the company acquired one store and shut seven stores during the reported quarter. With this, Rite Aid operates 4,547 stores across 31 states and the District of Columbia as of Nov 26, 2016. Additionally, the company opened two clinics in the quarter, taking its total clinics count to 92.
Merger Update
Earlier this week, Rite Aid and Walgreens inked a deal to sell 865 Rite Aid stores and some assets to Fred's, Inc. . This agreement is aimed to satisfy antitrust concerns related to Rite Aid’s long awaited acquisition by Walgreens, which was announced in Oct 2015 and is expected to close on Jan 27, 2016. In this regard, Fred’s agreed to buy Rite Aid’s stores and assets for $950 million in cash. Per the deal, if the Federal Trade Commission demands any more divestitures, Fred’s will have to buy additional Rite Aid stores, following Walgreen’s approval.
Rite Aid and Walgreens expect the merger to 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.
Rite Aid currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>