Rite Aid (RAD) Up 12.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Rite Aid (RAD). Shares have added about 12.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Rite Aid due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Rite Aid's Q4 Loss Wider Than Expected, Sales Rise Y/Y

Rite Aidreported fourth-quarter fiscal 2020 results, wherein loss was wider than expected while sales beat the Zacks Consensus Estimate. Top line gained from solid revenues in pharmacy services and retail pharmacy segments coupled with a rise in the prescription count. Also, it marked the second successive quarter of adjusted EBITDA growth.

Q4 in Detail

The company delivered an adjusted loss of 37 cents per share, compared with the Zacks Consensus Estimate of a loss of 13 cents. Also, the bottom line was much wider than the year-ago quarter’s adjusted loss of 25 cents.

Revenues grew 6.5% to $5,727.2 million and surpassed the Zacks Consensus Estimate of $5,659 million. During the fiscal fourth quarter, retail pharmacy segment revenues inched up 0.6% due to higher store count. In the pharmacy services segment, revenues rose 23.1% owing to a rise in Medicare Part D membership.

Retail pharmacy same-store sales advanced 1.6%, thanks to 1.6% and 0.1% rise in front-end and pharmacy sales, respectively. Excluding cigarettes and tobacco products, front-end same-store sales inched up 1.5%. Pharmacy sales included an adverse impact of nearly 330 basis points (bps) from the introduction of new generic drugs. Further, prescription count at same-store sales, adjusted to 30-day equivalents, rose 5%. Prescription sales contributed 65.9% to total drugstore sales.

Rite Aid’s adjusted EBITDA increased 1.1% year over year to $135.6 million, while adjusted EBITDA margin contracted 10 bps to 2.4%.

Financial Status

Rite Aid ended the quarter with cash and cash equivalents of approximately $218.2 million, long-term debt (net of current maturities) of $3,077.3 million and total shareholders’ equity of $674.5 million.

Further, the company generated cash from operating activities of $417.2 million in the fiscal fourth quarter.

Outlook

For the time being, the company has not witnessed any significant COVID-19 impact on adjusted EBITDA for fiscal 2021, courtesy of higher sales volume in March, which more than offset the sales decline during the rest of the fiscal first quarter. Going ahead, management notes that any further decline in front-end sales and prescription counts, a lesser number of pharmacy services segment commercial clients and supply-chain disruptions may hurt fiscal 2021 results.

For fiscal 2021, it anticipates revenues to be $22.5-$22.9 billion with same-store sales growth of 1.5-2.5% at the retail pharmacy segment. Further, revenues at the pharmacy services segment are projected to be $6.75-$6.85 billion. Moreover, the company envisions adjusted loss to be 19-22 cents for the fiscal. Also, adjusted EBITDA is forecasted to be $500-$540 million. It expects generating cash flows of $400-$450 million from operations and incurring capital expenditures of roughly $35 million in fiscal 2021.

Business Developments

Rite Aid has ramped up both in-store and online capabilities for the convenience of customers due to the COVID-19 crisis. It has expanded self-checkouts to 260 stores, which will be rolled out in 400 additional stores by fiscal 2021. Other notable facilities that consumers can bank on amid these trying times are prescription delivery and drive-through services.

Moreover, the company is partnering with Instacart and is on track to introduce more convenient delivery options for customers who shop from stores. Apart from these, it successfully conducted tests for a pay-and-go facility in a bid to expedite the prescription pick-up service in both stores and drive through. This service will be made available in all stores by Apr 30.

In addition, Rite Aid has included two more COVID-19 testing locations in its Waldwick, NJ, and Valley Cottage, NY stores. The recently-added testing site in Harrisburg will be open for testing from 9 am to 5 pm all seven days a week, with a target to perform roughly 200 tests each day. The testing will take place in the parking area of the store. Moreover, individuals must pre-register online and stay in their vehicles from the time they arrive until they leave the site. That said, it plans to open more such testing locations in New York, New Jersey, Ohio, Michigan and Virginia.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -285.71% due to these changes.

VGM Scores

Currently, Rite Aid has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Rite Aid has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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