Rite Aid's (RAD) Q4 Loss Narrower Than Expected, Sales Beat
Rite Aid Corporation RAD posted fourth-quarter fiscal 2021 results, wherein both top and bottom lines beat the Zacks Consensus Estimate. Further, management is progressing well with its RxEvolution strategy. Also, it rebranded its retail pharmacy business, concluded the buyout of Bartell and accelerated COVID-19 testing facilities and vaccine administration. Notably, it has already reached the milestone of 2 million COVID-19 tests in partnership with the U.S. Department of Health and Human Services. Moreover, both acute and maintenance prescription count trends turned positive. Apart from these, Rite Aid witnessed growth in Elixir.
However, the company noted that lesser cases of cough, cold and flu along with delayed elective procedures and COVID-19 impact on SG&A expenses hurt the reported quarter. Also, the February snowstorms led to supply-chain disruptions and affected store traffic, mostly in the Northeast markets.
We note that shares of this company have gained 11.7% year to date compared with the industry’s 17.1% growth.
Q4 in Detail
The company delivered an adjusted loss of 78 cents per share, narrower than the Zacks Consensus Estimate of a loss of 79 cents. However, the loss per share figure was wider than the year-ago quarter’s loss of 37 cents. The loss can be attributed to a decline in adjusted EBITDA and reduced LIFO credit, which more than offset gains from the buyout of Bartell and contribution from the sale of its distribution center at Lancaster, CA, and Woodland, CA.
Revenues grew 3.3% to $5,917 million and surpassed the Zacks Consensus Estimate of $5,843 million. This uptick was mainly due to the solid performance in the Retail Pharmacy and Pharmacy Services segments. Apart from these, the company’s top line gained 4% from Elixir.
During the quarter, the Retail Pharmacy segment revenues grew 3%, driven by gains from the acquisition of Bartell. Retail Pharmacy same-store sales fell 0.3% due to a 5.6% decline in front-end same-store sales. Excluding cigarettes and tobacco products, front-end same-store sales decreased 5% due to lesser cases of cough, cold and flu. Further, prescription count at same-store sales, adjusted to 30-day equivalents, edged down 0.9% due to lower acute prescription count to the tune of 14%, which more than offset the rise in maintenance prescriptions and administration of the first batch of the COVID-19 vaccine.
In the Pharmacy Services segment, revenues rose 3.8% owing to higher Medicare Part D revenues and a rise in claim revenues stemming from changes in member mix and benefit packages.
Online revenues skyrocketed 170% year over year in the quarter under review on the back of a revamped website and the mobile app. Also, partnerships with Amazon AMZN for the sale of its products and Instacart for home delivery acted as upsides.
During the reported quarter, adjusted EBITDA plummeted 70% year over year to $41.3 million. The downside is mainly due to soft gross profit stemming from reduced front-end same store sales, unfavorable weather that weighed on the supply chain and rising SG&A costs related to the COVID-19 crisis. Adjusted EBITDA margin contracted 170 bps to 0.7% in the quarter under review. In addition, SG&A expenses grew 2.9% year over year to $1,187.5 million.
Financial Status
Rite Aid ended the quarter with cash and cash equivalents of approximately $160.9 million, long-term debt (net of current maturities) of $3,063.1 million and total shareholders’ equity of $615.2 million. Capital expenditures are likely to be roughly $300 million in fiscal 2022, to be invested in digital, store remodeling initiatives and file buys.
Further, the company generated cash from operating activities of $359 million in the fiscal fourth quarter. Rite Aid boasts liquidity of roughly $1.7 billion, which is likely to help it stay afloat during the pandemic.
Rite Aid Corporation Price, Consensus and EPS Surprise
Rite Aid Corporation price-consensus-eps-surprise-chart | Rite Aid Corporation Quote
Fiscal 2022 Outlook
This Zacks Rank #5 (Strong Sell) stock is likely to grapple with pandemic-related headwinds in fiscal 2022. These include demand for COVID-19 testing and vaccines along with the severity of the cough, cold and flu season and the extent of increase of elective procedures to pre-pandemic levels.
The company’s first-quarter fiscal 2022 is expected to be affected by the number of COVID-19 vaccinations as well as delayed elective procedures and their impact on acute scripts. Notably, total revenues are anticipated to be $6.1-$6.3 billion in the fiscal first quarter, with the Retail Pharmacy Segment’s same store sales likely to be down 9-7% year over year. The bottom line is envisioned to range from a loss of $10 million to earnings of $10 million. Also, adjusted EBITDA is forecasted to be $115-$140 million.
Stocks in the Retail Space
L Brands LB currently has a long-term expected earnings growth rate of 13% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Tractor Supply Company TSCO, with a Zacks Rank #2 (Buy), has an expected long-term earnings growth rate of 9%.
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