Stock of the Day
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Rite Aid (RAD)
Rite Aid Needs More Than a Band-Aid to Fix Its Problems
Just a little over two years ago, in June 2007, Rite Aid was sitting pretty. The company had just completed a major acquisition, making Rite Aid the third largest drug store, and had announced unexpectedly strong profits. Analysts thought they might be unstoppable, and that Rite Aid would be giving its competitors a run for their money. However, two years later, the company is in a much different position. What does the future look like for Rite Aid, and is there a prescription that can help this ailing company?
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In June 2007, Rite Aid purchased Brooks & Eckerd pharmacies for $3.4 billion, a deal which in terms of size placed Rite Aid only behind Walgreens (WAG: Charts, News, Offers) and CVS (CVS: Charts, News, Offers). That same month, investors were expecting a slight loss in revenue. However, Rite Aid stunned investors by reporting revenue of $4.46 billion, and net income of $27.6 billion. At that point, Rite Aid's stock was up 18% for the year. This joy, however, was short-lived, as Rite Aid has posted a loss every quarter since that point. In just over two years, the company has lost over $4 billion.
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Rite Aid continued this trend this morning, reporting a $116 million net loss. This figure matched analysts' estimates, although the revenue of $6.32 billion fell just shy of expectations. Continuing with the bad news, the company also cut its forecast for 2010; last quarter, Rite Aid was forecasting a loss between 33 and 59 cents per share, but has now updated this to a loss between 48 and 74 cents per share. What has been causing these problems? Well, the integration of Brooks & Eckerd has been harder than anticipated, and the struggling economy has affected consumer purchasing behavior, decreasing purchase and increasing bargain-hunting.
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And yet despite this potentially frustrating course of events, Rite Aid has been making positive choices, and has a plan for the future. The company has closed over 100 stores, and reduced its inventories to cut costs. Rite Aid refinanced $1.9 billion of debt in order to improve its liquidity. In upcoming months, it is planning to introduce a new loyalty program which hopefully will increase pharmacy sales. Despite all of the disappointing news, Rite Aid's stock has performed moderately well, recovering nicely over the last couple months from a long downward slide. The stock which bottomed out at 20 cents a share in March has now recovered to a price of $1.95 per share. If Rite Aid continues to fight for its survival, and not give up, perhaps as the economy recovers Rite Aid will finally be in a better position to benefit from its 2007 acquisition and be an even stronger competitor.
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Rite Aid Commentary:
Alex Grass dies at 82; founder of Rite Aid - A look back at the life and contributions of Alex Grass, founder of Rite Aid.
Rite Aid's Rally Hits the Skids - Why did this analyst downgrade Rite Aid earlier this week, and what are his particular thoughts on the future of Rite Aid?
Drug Stores Poised To Benefit From Potential H1N1 Resurgence - Although the H1N1 virus is something the general public should be careful to avoid, the disease could actually be a benefit to Rite Aid and other pharmacies.
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Will car battery maker A123 Systems jump start the IPO market? - A123 Systems, trading under the ticker AONE, is the newest IPO that has surprised analysts with its valuation. This author, however, isn't convinced that this company is worth it.
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Profile |
Click here to view a detailed profile of Rite Aid.
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