Earnings Scorecard: Rite Aid – Analyst Blog
Rite Aid Corporation (RAD), the third largest retail drugstore in the U.S. based on revenues and number of stores, posted its second-quarter 2012 results. Street analysts had nearly a week to ponder on the news.
In the subsequent paragraphs, we cover the recent earnings announcement, analysts' estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.
On September 22, 2011, Rite Aid reported a loss of 11 cents per share for the second quarter of 2012, which not only improved from the prior-year quarter loss of 23 cents, but also outshined the Zacks Consensus Estimate loss of 18 cents. Growth in same-store sales and reduced selling, general & administrative (SG&A) expenses had a positive influence on recent results.
Rite Aid's revenues came in at $6,271.1 million for the quarter compared with $6,161.8 million in the prior-year period. The marginal increase of 1.8% was mostly attributable to growth in same-store sales, partially offset by store closings. Same-store sales for the quarter witnessed an increase of 2.2%. Total revenue beats the Zacks Consensus Estimate of $6,207.0 million.
Management's Guidance for 2012
Looking ahead, Rite Aid expects fiscal 2012 revenue to be between $25.8 billion and $26.1 billion based on same-store sales increase of 0.75% to 2.0%. Net loss is now expected to be in the range of $345 million to $495 million (or 40 cents to 56 cents per share) instead of $370 million to $560 million (or 42 cents to 64 cents per share) forecasted earlier.
(Read our full coverage on this earnings report: Rite Aid Narrows Loss in 2Q)
Agreement of Analysts
Estimate revision trends for the upcoming third and fourth quarter of fiscal 2012 portrayed mixed sentiments among most of the analysts covering the stock. Over the last 7 days, 1 out of 6 analysts following the stock revisited its estimate and have upgraded the same for the upcoming third-quarter 2012. While for the fourth quarter of 2012, 1 analyst revisited its estimate and has downgraded the same.
Moreover, over the last 7 days, 1 analyst each revisited and upgraded its estimates for fiscals 2012 and 2013, respectively.
Magnitude of Estimate Revisions
The magnitude of estimate revisions for Rite Aid depicts an optimistic outlook for the third quarter of 2012 and for full fiscal 2012 and 2013. However, the magnitude of estimate revision for the fourth quarter of 2012 and full fiscal 2013 remains constant at an estimated loss of 13 cents and 34 cents per share, respectively, over the last 7 days.
Over the last 7 days, estimated loss for third quarter of fiscal 2012 has been decreased by a penny to 12 cents per share. Further, for fiscal 2012, estimated loss has been lowered by 2 cents to 44 cents, over the last 7 days.
Generic (non-brand) drugs are less expensive but generate higher gross margin. Recent trend in the U.S. is witnessing a growing demand for generic drugs. The company is expected to expand its generic drug portfolio in order to enhance its top-line as well as market share. Rite Aid has an edge over its competitors as it is the third largest retail drugstore in the U.S. based on revenues and number of stores.
Moreover, the company is in the process of various cost cutting initiatives including centralized indirect procurement of drugs, administrative headcounts requirement, reducing supply chain costs, reducing debt, etc. which will certainly benefit the company to improve its bottom-line.
However, in the United States, pharmacy sales growth has slowed down due to longer FDA approval process, drug safety concern, loss of individual health insurance resulting from unemployment and an increase in the use of non-branded drugs, which are less expensive but generate higher gross margin. Due to these factors, the company's same-store-sales are expected to remain weak. The company has reported losses for the last fourteen consecutive quarters.
Moreover, Rite Aid's generic drug sales are negatively affected by Wal-Mart Stores Inc.'s (WMT) strategy of entering the retail generic drug market. Due to Wal-Mart's broad array of manufacturers in India, Israel, and the U.S., the mass merchant can offer generic drugs at a discounted price compared with the average $10 generic drug co-pay.
Rite Aid, which competes with CVS Caremark Corporation (CVS) and Walgreen Co. (WAG), currently, holds a Zacks #2 Rank, implying a short-term Buy rating on the stock. Besides, the company retains a long-term Neutral recommendation on the stock.
CVS CAREMARK CP (CVS): Free Stock Analysis Report
RITE AID CORP (RAD): Free Stock Analysis Report
WALGREEN CO (WAG): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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