Rite Aid (RAD) Stock Lower as Earnings Miss by a Penny

Shares of the Rite Aid Corporation (RAD) were trading off -0.42 or -4.71 percent to $8.50 per share in premarket trading on Thursday after announcing first quarter earnings and updating its full year 2016 guidance. Rite Aid stock closed at $8.92, down -0.03 or -0.34 percent in Wednesday's regular trading session.

Based in East Pennsboro Township, Cumberland County, Pennsylvania, the Rite Aid Corporation began as a single store in Scranton, Pennsylvania in 1962.
The company grew significantly and went public in 1968. Rite Aid is now the largest drugstore chain on the East Coast and the third largest in the country, operating 4,587 locations in 31 United States and D.C. The company sells prescription medications, as well as other merchandise known as "front-end products including personal care products, health and beauty products, cosmetics, food and beverages and seasonal items.

Rite Aid reported first quarter net income of $18.8 million or $0.02 per share versus $41.4 million or $0.04 per share in the same quarter one year ago. The analyst consensus was for the company to report earnings of $0.03 per share for the quarter.

Revenue for the quarter came to $6.65 billion compared to $6.47 billion in the same quarter last year, an increase of +2.8 percent. Analysts were expecting the company to report revenue of $6.65 billion.

According to the company, the drop in net income was in part due to interest and other pre-tax incremental costs of $36.0 million, or $0.02 per share on an after tax basis which resulted from Rite Aid's pending acquisition of EnvisionRx. The incremental costs were in part offset by an increase in the company's adjusted EBITDA or earnings before interest, taxes, depreciation and amortization.

The increase in revenue was attributed to same store sales, which increased +2.9 percent in the first quarter versus last year's firs quarter, with comparable front end sales increasing +0.6 percent while sales from the pharmacy increased +3.6 percent. Filled prescriptions were up +1.6 percent in the quarter.

Pharmacy sales included approximately a 165 basis point negative impact due to the introduction of new generic medications. Prescription sales accounted for 69.1 percent of total drugstore sales with third party prescription revenue making up 97.7 percent of pharmacy sales.

Rite Aid updated its guidance for the company's fiscal 2016 full year and includes the results expected from its acquisition of EnvisionRx. The company now expects earnings per share of $0.14 to $0.22 and net income to be between $150 million and $230 million. Full year revenue is now expected to be $26.9 billion to $27.4 billion with same store sales expected to increase from 2.5 percent to 4.5 percent over same store sales the previous year. Analysts were expecting guidance of $0.26 per share on revenue of $27.3 billion.

Shareholders are reacting negatively to the news, selling shares down almost five percent in this morning's premarket. Nevertheless, the stock has recovered significantly from its 52-week low of $4.42 per share and has been recommended by a number of influential stock analysts including Cowen & Co. and Deutsche Bank who have price targets of $12.00 and $10.00 per share respectively.

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Published on Jun 18, 2015
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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