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Rite Aid (RAD) Reports Q1 Loss, Stock Up on Revenue Beat

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Rite Aid Corporation (RAD - Free Report) delivered mixed results for first-quarter fiscal 2019, wherein the bottom line lagged estimates while sales topped. Further, the bottom line was flat with the prior-year quarter and the top line declined marginally. It was also the second straight quarter of improved adjusted EBITDA for the Retail Pharmacy segment, which led to increased adjusted EBITDA for the company.

Other key highlights of the reported quarter included the transfer of 281 stores to Walgreens (WBA - Free Report) , which completed the company’s store transfer process. However, the sale of three distribution centers and related inventory is likely to take place after Sep 1, 2018. With cash proceeds of $268.6 million received in the quarter under review, management considerably lowered its debt position. As a result, its debt (net of cash) was $3 billion as of Jun 2, 2018.

Additionally, the company agreed to merge with Albertsons on Feb 20, 2018. The companies expect to close the merger in the second half of the calendar year 2018.

Shares of Rite Aid reflected about 1% improvement after reporting a top line beat for the first quarter of fiscal 2019. Moreover, this Zacks Rank #3 (Hold) stock surged 17.3% in the last three months, outperforming the industry’s increase of 7.1%. The stock’s momentum is mainly attributed to the recent completion of store transfers to Walgreens and the pending merger with Albertsons.



Q1 in Detail

Rite Aid reported adjusted loss per share of 1 cent in first-quarter fiscal 2019, underperformed the Zacks Consensus Estimate of break-even results. It was at par with the year-ago quarter figure. Bottom line results were primarily hurt by an increase in interest expenses, higher lease termination and impairment charges, as well as higher transaction costs. This was partly negated by improved Adjusted EBITDA.

Rite Aid Corporation Price, Consensus and EPS Surprise

Rite Aid Corporation Price, Consensus and EPS Surprise | Rite Aid Corporation Quote

Revenues dropped 0.9% to $5,388.5 million but surpassed the Zacks Consensus Estimate of $5,354 million. During the reported quarter, Retail Pharmacy segment revenues declined 1.9% on account of soft same-store sales and store closures. However, revenues from the Pharmacy Services segment rose 2% due to higher Medicare Part D membership.

Retail Pharmacy same-store sales dipped 0.7%, owing to 0.1% fall in pharmacy sales and 1.8% decrease in front-end sales. Pharmacy sales included a negative impact of nearly 133 basis points (bps) from the introduction of new generic drugs. Further, prescription count at comparable stores slipped 1.5% due to the omission of some pharmacy networks from the prior-year quarter. Prescription sales constituted 66.4% of total drugstore sales.

Rite Aid’s adjusted EBITDA improved 8.3% year over year to $147.3 million, while adjusted EBITDA margin expanded 20 bps to 2.7%. Adjusted for fees related to the Walgreens transaction, pro-forma adjusted EBITDA for first-quarter fiscal 2019 was $160 million, reflecting a 17.6% increase year over year. Adjusted EBITDA gained from favorable results for the Retail Pharmacy segment, driven by gross margin growth and efficient cost management. This was partly offset by a decline in the Pharmacy Services segment, due to the fall in commercial business and operating investments to support growth.

Store Update

Rite Aid continues to renovate stores, with 49 remodels carried out in the fiscal first quarter. This brings the company’s total wellness-stores count to 1,694. Further, it sold 281 stores to Walgreens and shut 17 stores during the reported quarter, consequently taking the total store count to 2,533 as of Jun 2, 2018.

Financial Status

Rite Aid ended the fiscal first quarter with cash and cash equivalents of approximately $147.1 million, long-term debt (net of current maturities) of $3,134.7 million and total shareholders’ equity of $1,812.3 million.

Further, the company’s cash, used in operating activities, was $16.3 million as of Jun 2, 2018.

Outlook

Based on the expected gains from more stable reimbursement rates compared with fiscal 2018, TSA fees related to the WBA deal, generic drug purchasing efficiencies, and other initiatives to drive sales growth and operational efficiencies, Rite Aid reiterated its initial guidance for fiscal 2019. However, the company’s guidance does not include any impact of the pending transaction with Albertsons.

Rite Aid estimates sales of $21.7-$22.1 billion in fiscal 2019, with comps anticipated in the range of flat-to-up 1%. Adjusted EBITDA is projected to be $615-$675 million. Further, the company expects net loss of $40-$95 million in fiscal 2019. Adjusted earnings per share are expected to be 2-6 cents compared with loss per share of 2 cents reported in fiscal 2018. Additionally, it expects capital expenditure of nearly $250 million in fiscal 2019.

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Herbalife has delivered an average positive earnings surprise of 25.6% in the trailing four quarters. Further, the stock has gained 10.7% in the last three months. It has long-term earnings growth rate of 8%.

Buckle has rallied 23% in the last three months. Moreover, it has delivered an average positive earnings surprise of 9.7% in the trailing four quarters.

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