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Rite Aid (RAD) Plans 400 Job Cuts, Stock Up on Restructuring

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Shares of Rite Aid Corporation (RAD - Free Report) increased more than 12% in after-hours trading on Mar 12, following the announcement of leadership transition and organizational revamping. These changes are expected to help the company become a more profitable one, thus better aligning its operations and minimizing operating costs.

In sync with Rite Aid’s leadership transition, the company will slash managerial layers and consolidate job positions. Apart from the exit of certain top executives, Rite Aid will eliminate roughly 400 full-time employees. Nearly two-thirds of these layoffs will take place immediately and the remainder by the end of fiscal 2020. Notably, the layoffs will affect above 20% of corporate jobs at its headquarters and field operations.

The leadership changes include the stepping down of John Standley, Rite Aid’s current chief executive officer. However, he will continue to hold office till the appointment of his successor. Additionally, Kermit Crawford and Darren Karst will step down, with the latter exiting this spring and contributing to a brief transition. Bryan Everett, the chief operating officer of Rite Aid Stores, will succeed Crawford and assume the role of chief operating officer of the company. Darren Karst will be succeeded by Matt Schroeder, chief accounting officer and treasurer, and becomes the new chief financial officer.

Furthermore, Brian Hoover is promoted to chief accounting officer and Jocelyn Konrad will assume the role of executive vice president, pharmacy and retail operations. Derek Griffith, the executive vice president, store operations, is also leaving the company. Apart from these leadership changes, management will consolidate other senior leadership roles and eliminate some positions. These changes will be effective immediately.

Rite Aid anticipates generating annual cost savings of nearly $55 million on account of these restructuring actions. Of this, the company expects to realize approximately $42 million savings by fiscal 2020. Moreover, it expects to incur roughly $38 million as one-time restructuring charges. Management expects these savings to compensate the anticipated decrease in income related to the reduced obligations under the Transition Services Agreement with Walgreens Boots Alliance, Inc. (WBA - Free Report) .

Rite Aid has been witnessing tough times, given two failed mergers with Walgreens and Albertsons in the recent past along with other operational issues. Further, we note that the company’s lower stock led to non-compliance of listing rules of NYSE. The company may regain compliance under the NYSE listing rules, if its share price is at least $1.00 and it maintains average closing price of at least $1.00 over the past 30 trading days during the six-month cure period or on Jul 3, 2019 — the end of the six-month cure period. Until then, the company’s shares will be listed and continue to trade on the NYSE.


 

Consequently, shares of Rite Aid have plunged 58.4% in a year, wider than the industry’s 16.7% decline.

Nevertheless, Rite Aid is leveraging retail pharmacies, EnvisionRxOptions PBM and health and wellness offerings. In third-quarter fiscal 2019, its earnings and sales improved year over year. The bottom line also surpassed estimates for the third time in trailing five quarters. Furthermore, the company delivered the strongest prescription count in more than two years and finest comparable store sales in over three years. Rite Aid expects to maintain this momentum by enhancing clinical services in the pharmacy business, boosting customer experience and investing in retail and pharmacy services businesses.

We expect the aforementioned leadership transition to position Rite Aid for growth in the future, thereby creating value for its shareholders. Rite Aid currently carries a Zacks Rank #2 (Buy).

Two Better-Ranked Retail Stocks

MarineMax, Inc. (HZO - Free Report) delivered average positive earnings surprise of 53.4% in the trailing four quarters. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch Co. (ANF - Free Report) has outpaced the earnings estimates in each of the trailing four quarters by an average of 88.3%. It is also a Zacks Rank #1 stock.

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