Solid Demand & Other Efforts Aid Rite Aid (RAD) Amid Cost Woes
Although high costs and a drab view remain concerning, Rite Aid (RAD) looks well-positioned on robust demand, enhanced omni-channel capabilities and strength in PBM.
Shares of Rite Aid Corporation RAD have declined 25.7% in a year against the industry’s growth of 31.3%. The stock further came under pressure due to the slashed fiscal 2022 view. The company has also been reeling under elevated expenses for the past few quarters.
SG&A expenses grew 10.4% year over year to $1,276.9 million in the third quarter of fiscal 2022. This was mainly due to higher payroll costs, elevated bonus expenses for store field and corporate associates, a rise in compensation, and the inclusion of the Bartell-related expenses.
Management expects sales of $24.4-$24.7 million, down from the earlier mentioned $25.1-$25.5 billion. The Pharmacy services segment’s sales are anticipated to be $7.1-$7.2 billion, down from the previously mentioned $7.7-$7.8 million. Although adjusted net loss is envisioned to be 49-4 cents compared with the previously mentioned loss of 90-53 cents, its mid-point is a loss of 26.5 cents. Notably, the company reported a loss of 15 cents for fiscal 2021.
Image Source: Zacks Investment Research
Efforts to Counter Hurdles
Rite Aid’s accelerated COVID-19 vaccine program as well as enhanced retail and digital experiences bodes well. Notably, this Zacks Rank #3 (Hold) company administered 4 million COVID-19 vaccines and conducted 1.1 million COVID-19 tests in the fiscal third quarter, driven by the continued and rising customer demand.
The company remains committed to providing lower healthcare costs, better customer engagement and personalized services. This led to year-over-year revenue growth of 1.8%. The solid performance in Retail Pharmacy more than offset the sluggishness in the Pharmacy Services segment. In the said quarter, the Retail Pharmacy segment’s revenues grew 7.9%, driven by gains from the acquisition of Bartell and same-store sales growth.
The company has been benefiting from the expansion of delivery services to its customers. Some notable efforts include free-of-cost home-delivery service with an eligible prescription, pick-up and drive-through services for prescriptions, and over-the-counter products at its stores as well as its Buy Online Pickup In Store initiative. It also expanded the Instacart delivery facility and made partnerships with Amazon and Instacart for home delivery, which is contributing to digital sales growth.
Online revenues surged 75% year over year in the fiscal third quarter on the back of continued strength in on-demand delivery, third-party marketplaces, and buy online, pick up at store options. Management expanded Uber Eats and Postmates, and rolled out its buy online, pick up at store service in the fiscal third quarter.
Earlier, it partnered with DoorDash to offer same-day delivery of non-prescription health, convenience and wellness essentials along with ScriptDrop to expedite the prescription delivery process. Rite Aid remains on track with plans to invest in its online scheduling platform, which will allow customers to schedule appointments for COVID-19, flu and other vaccines. Recently, Shipt and Rite Aid entered a partnership to provide same-day delivery of health and wellness products to Rite Aid’s retail footprint across 17 states.
As part of its corporate strategy and growth plan, Rite Aid remains focused on strengthening its foothold in mid-market PBM and innovation across its retail and mail-order pharmacy channels. It is also on track withenhancing the in-store experience by curated digital offerings, improved merchandise, and rebranding its image with a new logo. RAD launched the first three Stores of the Future and successfully concluded the acquisition of Bartell, which will help expand its customer base.
In the fiscal third quarter, Rite Aid closed 63 stores as part of its store closure program, which is likely to have a favorable impact of $25 million on annual EBITDA. Alongside this, it launched a loyalty program to improve front-end margin, expanded its brands and enhanced PBM margins via its new rebate aggregation agreement.
The company continues to witness a solid performance in PBM in terms of mail orders. Its new RxEvolution strategy, with the help of which Rite Aid is likely to become a leader in mid-market PBM, remains on track. Management expects PBM revenues of $7.7-$7.8 million for fiscal 2022.
We hope that the continued demand for COVID-19 vaccines and testing due to the resurgence in cases along with expanded delivery services and strength in PBM are likely to offset cost headwinds. Also, a VGM Score of A raises optimism in the stock.
Stocks to Consider
We have highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Target Corporation TGT, Capri Holdings CPRI and Costco Wholesale Corporation COST.
Target, a renowned omni-channel retailer, presently sports a Zacks Rank #1 (Strong Buy). TGT has a trailing four-quarter earnings surprise of 19.7%, on average. The stock has rallied 19.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Target’s sales and EPS for the current financial year suggests growth of 13% and 40%, respectively, from the year-ago levels. TGT has an expected EPS growth rate of 14.4% for three-five years.
Capri Holdings, which operates membership warehouses, presently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 1,024.9%, on average. Shares of CPRI have rallied 35.8% in the past year.
The Zacks Consensus Estimate for Capri Holdings’ sales and EPS for the current financial year suggests respective growth of 33.2% and 181.1% from the year-ago period’s reported figures. CPRI has an expected EPS growth rate of 32.2% for three to five years.
Costco Wholesale presently has a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 8.3%, on average. Shares of COST have rallied 48.4% in the past year.
The Zacks Consensus Estimate for Costco Wholesale’s sales and EPS for the current financial year suggests respective growth of 10.8% and 13.9% from the year-ago period’s reported figures. COST has an expected EPS growth rate of 8.8% for three to five years.
Zacks' Top Picks to Cash in on Artificial Intelligence
In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Rite Aid Corporation (RAD): Free Stock Analysis Report
Target Corporation (TGT): Free Stock Analysis Report
Costco Wholesale Corporation (COST): Free Stock Analysis Report
Capri Holdings Limited (CPRI): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research