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What investors should watch when Rite Aid (RAD) reports Q3 results Thursday

As drugstore chain Rite Aid (NYSE: RAD) prepares to report third-quarter earnings, there is caution among shareholders due to the dismal performance of the stock in recent months. The results will be published on Thursday at 7:00 am ET.

Related: Rite Aid Q2 2020 Earnings Conference Call Transcript

Retail Pharmacy, the core business, is yet to recover from the continuing slump, amid falling store footfall. However, the management’s efforts to improve operational efficiency, with support from pharmacy-benefit-management division EnvisionRxOptions and the steady rise in Medicare enrollments, should boost store traffic. The increasing focus on health and wellness gives customers a better store experience, complementing the improvement in brand offerings.

Rite Aid Corporation (NYSE: RAD) swung to a profit in the second quarter of 2020, from a loss in the year-over period, even as revenues growth remained stagnant

In the to-be-reported quarter, the pharmacy business is expected to have benefited from Rite Aid’s partnership with Amazon (AMZN). Also, recent investments in the digital channel are paying off, which is expected to have added to revenue growth.

Cost Pressure

Nevertheless, expenses are likely to remain elevated, mainly due to spending on promotional activities to tackle competition. Another concern is the impact of new generic drugs on the retail pharmacy business, which also faces pressure from unfavorable prescription reimbursement rates.

Market watchers forecast that earnings would drop 55% annually to $0.09 per share in the third quarter. Revenues are expected to remain broadly unchanged at $5.42 billion.

Looking Back

In the second quarter, Rite Aid turned to profit from last year’s loss, despite recording flat revenues. At 12 cents per share, earnings were above analysts’ forecast. Revenues came in at $5.36 billion and fell short of expectations, reflecting weakness in the retail pharmacy business.

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CEO Exit

Recently, John Standley was forced to step down as CEO, ending a nine-year stint at Rite Aid, after his efforts to arrest the stock’s free-fall and bring the company to the recovery path failed. Earlier, Rite Aid’s attempts to clinch a merger deal with Albertsons fell apart. Currently, the stakeholders are pinning hope on the company’s new chief Heyward Donigan to turn things around.

Rite Aid’s stock witnessed a persistent downturn in the past few weeks, reversing the recent gains that marked a recovery from the multi-year lows seen earlier this year. The stock has lost 55% since the beginning of the year.

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