Rite Aid (RAD) Falls Despite Narrower-Than-Expected Q4 Loss

Rite Aid Corporation RAD reported narrower-than-expected loss in fourth-quarter fiscal 2019. Meanwhile, the company’s sales lagged Zacks Consensus Estimate and fell year over year.

Shares of Rite Aid fell 9.5% on Apr 11 probably due to soft top-line performance. A soft view for fiscal 2020 further hurt investors’ sentiments.

Rite Aid projects revenues of $21.5-$21.9 billion for fiscal 2020, whereas the Zacks Consensus Estimate is pegged at $22.2 billion. Further, it now envisions bottom line between adjusted loss of 1 cent and earnings of 4 cents per share. The consensus estimate for fiscal 2020 currently stands at earnings of 3 cents.

Q4 in Detail

In the reported quarter, Rite Aid posted adjusted loss from continuing operations of 1 cent per share. Though quarterly loss was in line with the prior-year period, it was narrower than the Zacks Consensus Estimate of loss of 3 cents.

Revenues declined 0.3% to $5,379.6 million and missed the Zacks Consensus Estimate of $5,557 million. At the Retail Pharmacy segment, revenues for the fiscal fourth quarter remained flat year over year. At the Pharmacy Services segment, revenues inched up 1.2%, owing to increased Medicare Part D membership.

Rite Aid Corporation Price, Consensus and EPS Surprise

 

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

Retail Pharmacy same-store sales improved 0.7%, including 2.1% rise in pharmacy sales and a 1.9% decline in front-end sales. Notably, Pharmacy sales included a negative impact of nearly 100 basis points (bps) from the introduction of generic drugs. Further, prescription count at comparable stores advanced 0.8%. Prescription sales constituted 65.9% of total drugstore sales.

Notably, the company delivered the third straight quarter of same-store pharmacy sales and prescription growth despite mild flu season. This was backed by a record number of immunizations as well as other script growth strategies.

Driven by lower pharmacy gross profit, Rite Aid’s adjusted EBITDA fell 13.4% year over year to $134.1 million. In addition, lower front end same-store sales coupled with higher distribution costs, partly stemming from the realignment of stores across the company’s distribution network, hurt EBITDA. This was somewhat offset by reduction in salaries and benefits, lower advertising expenses and higher Transition Services Agreement (“TSA”) fee income from Walgreens Boots Alliance WBA. Meanwhile, adjusted EBITDA margin declined 40 bps to 2.5%.

Further, adjusted EBITDA at the Retail Pharmacy Segment totaled $96.2 million depicting a 20.8% decline from the prior-year quarter. At the Pharmacy Services Segment, the metric amounted to $37.8 million, reflecting rise of almost 13.5%.

Store Update

Rite Aid remodeled 30 stores in the fiscal fourth quarter, bringing the company’s total wellness-store count to 1,765. Further, it shuttered 56 stores during the reported quarter, consequently taking the store count to 2,469 as of Mar 2, 2019.

Other Developments

Rite Aid completed the refinancing of a new senior secured credit agreement. This includes $2.7-billion senior secured asset-based revolving credit facility and $450-million “first in, last out” senior secured term loan facility. Furthermore, the company’s present $2.7-billion senior secured asset-based revolving credit facility was refinanced by the latest $3.15-billion credit facility. This facility was slated to mature in January 2020. Notably, Rite Aid boasts no debt maturity till 2023, with $450 million increased liquidity.

Owing to the increasing demand for CBD-infused products, the company plans to start selling CBD creams, lotions and lip balms at stores in Oregon and Washington, beginning from this month. This might enhance the company’s top and bottom lines.

Financial Status

Rite Aid ended the fiscal fourth quarter with cash and cash equivalents of approximately $144.4 million, long-term debt (net of current maturities) of $3,454.6 million and total shareholders’ equity of $1,186.7 million.

Further, the company used cash of $215.9 million from operating activities as of Mar 2, 2019.

Outlook

Rite Aid issued soft view for fiscal 2020 as it assumes lower reimbursement rates, almost in line with the decline witnessed in fiscal 2019. The guidance also estimates roughly $40 million decrease in TSA fee income, which will be partly compensated by lower corporate SG&A costs. Further, it expects rise of $11 million in rent charges, stemming from the adoption of the new lease accounting standard.

Depending on conditions in the generic drug space, the company is not able to largely compensate declines with generic drug purchasing savings in comparison to the last fiscal year. Consequently, Rite Aid projects same store sales growth of 0-1% from fiscal 2019.

Moreover, the company anticipates adjusted EBITDA to be between $500 million and $560 million for fiscal 2020. Further, it estimates net loss of $170-$220 million. Capital expenditure is anticipated to be roughly $250 million.

 

Price Performance

In the past three months, this Zacks Rank #3 (Hold) stock has declined 36.7%, wider than the industry’s 16.4% decline.

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Abercrombie & Fitch Co. ANF has an impressive long-term earnings growth rate of 15.3% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hibbett Sports, Inc. HIBB delivered a positive earnings surprise of 50% in the last reported quarter. The company currently carries a Zacks Rank #2 (Buy).

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