Yahoo Finance Can Rite Aid (RAD) Get Back on Track Via Solid Growth Efforts?
Rite Aid Corporation RAD is reeling under lower sales due to muted demand for flu immunizations, COVID tests and vaccines. The adverse impacts of closed stores and lower membership at Elixir act as other headwinds.
This led to a sluggish year-over-year performance in third-quarter fiscal 2023. Rite Aid incurred an adjusted loss of 14 cents per share against the prior-year quarter’s earnings of 15 cents. Revenues declined 2.3% from the year-ago quarter’s $6,083.3 million.
Sluggishness in both Retail Pharmacy and Pharmacy Services segments hurt sales. In the fiscal third quarter, the Retail Pharmacy segment's revenues fell 0.5% due to a reduction in COVID-19 vaccines and testing, as well as store closures, offset by higher acute and maintenance prescriptions. In the Pharmacy Services segment, revenues declined 7.1% due to client loss announced earlier and reduced Elixir Insurance membership.
Adjusted EBITDA plunged 21.2% from the year-ago period to $121.9 million. The adjusted EBITDA margin contracted 50 basis points to 2% in the quarter under review.
Notably, management trimmed the adjusted EBITDA view for fiscal 2023. Adjusted EBITDA is anticipated to be $410-$440 million compared with the earlier stated $450-$490 million, induced by the expectations of cautious consumer demand and supply-chain headwinds.
The Retail Pharmacy segment’s adjusted EBITDA is predicted between $265 million and $285 million, down from the prior stated $305-$335 million. The Pharmacy Services segment’s Adjusted EBITDA is projected to be $145-$155 million.
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Owing to these factors, the RAD stock declined 22% in the past three months against the industry’s growth of 5.1%.
Efforts to Counter Hurdles
Despite these downsides, increased non-COVID prescriptions and lower SG&A came as a relief to the company. Its adjusted SG&A expenses fell 6.5%, while the metric, as a percentage of sales, contracted 90 bps year over year due to lower payroll, occupancy and reduced costs stemming from store closures and cost-control initiatives.
Earlier, management revealed plans to lower costs via the closures of 145 unprofitable stores, reduced corporate administrative expenses and enhanced efficiencies in worked payroll and other store labor costs. It intends to reduce costs related to Elixir due to declining memberships. These cost initiatives are expected to generate $190 million in savings in fiscal 2023.
Also, a solid online show bodes well for RAD. The company’s free home delivery service, pick-up and drive-through services for prescriptions, and the Buy Online Pickup In Store initiative are upsides.
In order to expedite its delivery process, Rite Aid has, time and again, undertaken partnerships. Some of them are Uber Eats, Postmates, Amazon and Instacart delivery services. It also collaborated with DoorDash and Shipt to offer same-day delivery as well as with ScriptDrop to expedite the prescription delivery process. Also, its latest partnership with Afterpay enables the former to offer the service of shop online and pay later.
Also, Rite Aid launched its loyalty program, Rite Aid Rewards, to expand its customer base to improve customer engagement in pharmacy and front-end sales.
In the fiscal third quarter, the company collaborated with Grubhub to deliver the former's drugstore products to customers in more than 2000 locations across 16 states with the benefit of zero delivery fees on orders of $12 or above. Earlier, it partnered with Quest Diagnostics, which commercializes PCR tests.
Rite Aid is focused on strengthening its foothold in mid-market PBM, innovation across its retail and mail-order pharmacy channels, enhancing the in-store experience by curated digital offerings, improving merchandise and rebranding its image with a new logo. The company earlier launched its first three Stores of the Future and concluded the acquisition of Bartell, which will help expand its customer base.
Wrapping Up
We believe that expanded delivery services, increased non-COVID prescriptions, and cost-saving initiatives will offset cost headwinds and help this Zacks Rank #3 (Hold) stock get back on track in the near future.
Stocks to Consider
Here are three better-ranked stocks to consider, namely Technoglass TGLS, Ross Stores ROST and Wingstop WING.
Tecnoglass, the manufacturer and seller of architectural glass and windows, and aluminum products for the residential and commercial construction industries, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s reported levels. TGLS has a trailing four-quarter earnings surprise of 26.9%, on average.
Ross Stores, an off-price retailer of apparel and home accessories in the United States, currently sports a Zacks Rank #2 (Buy). ROST has an expected EPS growth rate of 10.5% for three to five years.
The Zacks Consensus Estimate for Ross Stores’ current-year sales and EPS suggests declines of 1.6% and 11.7%, respectively, from the year-ago period’s reported figures. ROST has a trailing four-quarter earnings surprise of 10.5%, on average.
Wingstop, the operator of franchises and restaurants, currently carries a Zacks Rank #2. WING has a long-term earnings growth rate of 11%.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.1% and 16.4%, respectively, from the year-ago period’s reported levels.
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Rite Aid Corporation (RAD) : Free Stock Analysis Report
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Tecnoglass Inc. (TGLS) : Free Stock Analysis Report
Wingstop Inc. (WING) : Free Stock Analysis Report
