Earnings preview: Rite Aid unlikely to deliver any surprise in Q1

Rite Aid Corporation (NYSE: RAD) was on the verge of being delisted after the stock price slipped to a record low at the beginning of the year amid the operational crisis that followed a couple of botched merger deals and management reshuffle. However, the condition improved after an extensive restructuring.

The drugstore chain will be publishing the results for the first quarter of 2020 Wednesday after the closing bell. Market watchers are looking for a modest loss of $0.07 per share, representing an improvement from the $0.20 per share loss reported a year earlier. The forecast for revenues is $5.38 billion, which is broadly in line with last year.

The good news for the disillusioned shareholders is that the management’s growth strategy is giving positive results. The overall improvement in operational efficiency and the acquisition of EnvisionRxOptions are putting the company back on track. In the recent quarters, the increased focus on wellness offerings and the pharmacy benefits management businesses boosted prescription sales and prescription count significantly at comparable stores.

The overall improvement in operational efficiency and the acquisition of EnvisionRxOptions are putting the company back on track

Of late, Rite Aid has been posting better bottom-line numbers compared to the market’s expectations, and the trend is likely to continue during the remainder of the year. Also, its entry into the sales of CBD-based wellness products, with the aim of the cashing in on the growing demand, is expected to catalyze the recovery.

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However, margins will remain under pressure from the high costs and muted sales growth in the foreseeable future even as competition from online pharmacy retailers intensifies.

The company reported a modest net loss for the fourth quarter, which was in line with the prior-year quarter and slightly better than the estimates. At $5.38 billion, revenues were broadly flat year-over-year as an increase in the Pharmacy Services segment was offset by flat Retail Pharmacy revenues. Sales were negatively impacted by new generic launches.  

Walgreens Boots Alliance (WBA), which has acquired a significant number of Rite Aid stores under an asset purchase deal, will be reporting its third-quarter results Thursday before the opening bell. Among others, CVS Health (CSV), is scheduled to release second-quarter results on July 31 early morning.

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Rite Aid shares have remained in a perpetual downward spiral for more than two years. The stock has lost 80% in the past twelve months and 57% since the beginning of 2019. Currently trading at a multi-year low of around $6.5, the stock has long been underperforming the sector.

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