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Things You Must Know Prior to Rite Aid's (RAD) Q2 Earnings

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Rite Aid Corporation (RAD - Free Report) is slated to report second-quarter fiscal 2020 results on Sep 26.

Notably, the company has delivered a bottom-line beat in two of the last four quarters. However, it witnessed average four-quarter negative surprise of 145.8%.

Let’s see how things are shaping up prior to this announcement.

How Are Estimates Faring?

The Zacks Consensus Estimate for second-quarter earnings currently stands at 8 cents, which increased from 7 cents pegged 30 days ago.

Rite Aid Corporation Price and EPS Surprise

Rite Aid Corporation Price and EPS Surprise

Rite Aid Corporation price-eps-surprise | Rite Aid Corporation Quote

For quarterly revenues, the consensus mark is pegged at $5.42 billion, almost in line with the year-ago reported figure.

Factors at Play

Rite Aid is on track with its growth strategy that focuses on leveraging unique opportunities such as EnvisionRxOptions PBM, enhancing front-end channels and transforming processes to deliver operational efficiency. Further, the company is focused on leveraging retail pharmacies as well as health and wellness offerings. Impressively, increased immunizations along with clinical pharmacy services and script growth strategies have been driving Rite Aid’s retail and pharmacy businesses.

In addition, the company remains keen on capturing opportunities through diverse brand offerings. Meanwhile, Rite Aid is gaining from consistent growth in Medicare Part D enrolment, which has been providing a boost to revenues at the Pharmacy Services. With a view to bolster demand for CBD products, the company has started selling CBD creams, lotions and lip balms at stores in Oregon and Washington.

Additionally, the company remains keen on boosting customer experience, both online and in-store, as part of its efforts to boost market share. It has been remodeling its wellness stores. Moreover, it has shifted e-commerce fulfillment from a third-party provider to its own distribution network. This has reduced fulfillment lead time, lowered costs and helped to increase online offerings by 25%. All these actions are expected to bolster top and bottom-line growth in the to-be-reported quarter.

However, Rite Aid has been reporting weak front-end sales since the last few quarters, which may persist in the fiscal second quarter. Softness in tobacco owing to regulation changes, which restricted selling tobacco in some New York stores, and in over-the-counter cough-cold and flu products are affecting front-end performance. This along with higher SG&A expenses due to continued investments for growth hurt EBITDA in the fiscal first quarter.

Moreover, it has been facing continued reimbursement rate pressures for a while. In fact, management expects performance in the current fiscal year to be affected by a persistent decline in prescription reimbursement rates. Persistence of these headwinds may be a threat to the company’s margins and bottom line in second-quarter fiscal 2020.

Moreover, a soft outlook for fiscal 2020 is a cause of concern for investors. The company estimates a net loss of $170-$220 million, while the bottom line is expected between adjusted loss of 14 cents and earnings of 72 cents per share.

A Look at the Zacks Model

Our proven model does not predict that Rite Aid is likely to beat estimates in second-quarter fiscal 2020. This is because a stock needs to have — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Rite Aid has a Zacks Rank #3, which increases the predictive power of earnings beat. However, the company’s Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Hasbro, Inc. (HAS - Free Report) has an Earnings ESP of +7.34% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Home Depot, Inc. (HD - Free Report) has an Earnings ESP of +0.40% and a Zacks Rank #3.

Costco Wholesale Corporation (COST - Free Report) has an Earnings ESP of +0.39% and a Zacks Rank #3.

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