Rite Aid Corporation RAD reported first-quarter fiscal 2021 results, wherein loss was narrower than expected, while sales beat the Zacks Consensus Estimate. Both metrics improved year over year. The company gained market share and grew double digits in front-end sales as it kept stores open amid the coronavirus outbreak and enhanced its digital capabilities to provide essential services to customers.

Solid growth in prescription deliveries to the tune of 86%, driven by free home delivery services as well as a sturdy performance at Elixir, also contributed to the quarterly results. Further, it noted that the new RxEvolution strategy is on track.

Despite better-than-expected first-quarter results, management did not provide any guidance for fiscal 2021 due to continued uncertainty in relation to the COVID-19 pandemic. It also anticipates possible adverse impacts on acute prescription volumes, SG&A expenses and Pharmacy Services Segment memberships.

Rite Aid Corporation Price, Consensus and EPS Surprise

Rite Aid Corporation price-consensus-eps-surprise-chart | Rite Aid Corporation Quote

Q1 in Detail

The company delivered an adjusted loss of 4 cents per share, narrower than the Zacks Consensus Estimate of a loss of 54 cents. Also, the bottom line came below the year-ago quarter’s adjusted loss of 14 cents. This might be attributable to a rise in gross profit and lower interest expenses, somewhat offset by increased SG&A expenses stemming from COVID-19-related investments.

Revenues grew 12.2% to $6,027 million and surpassed the Zacks Consensus Estimate of $5,599 million. During the quarter, retail pharmacy segment revenues grew 6.7% due to higher same-store sales. In the pharmacy services segment, revenues rose 26.2% owing to a rise in Medicare Part D membership.

Retail pharmacy same-store sales advanced 6.6%, thanks to a 14.2% and 2.2% rise in front-end and pharmacy sales, respectively. Excluding cigarettes and tobacco products, front-end same-store sales rose 16% on the back of solid demand for general cleaning products, sanitizers, wipes, paper products, liquor, over-the-counter products and summer seasonal products. Apart from these, average order value and units per transaction increased to the tune of 87% and 43% year over year, respectively.

Further, prescription count at same-store sales, adjusted to 30-day equivalents, inched up 0.4%. The uptick was due to growth in maintenance medication fills, somewhat offset by reduced acute prescription count to the tune of 14.8%, stemming from a delay in outpatient medical visits and optional surgical procedures due to COVID-19. Also, prescription sales contributed 64.2% to total drugstore sales.

Moreover, the company witnessed comparable front-end sales (excluding cigarettes and tobacco products) growth of 7.2% in the first three weeks of June, driven by robust demand for personal care, paper products and OTC medications.

During the reported quarter, Rite Aid’s gross profit came in at $1,081.5 million, up 4.9% from the prior-year quarter, while gross margin contracted 43 basis points to 26.2%. Adjusted EBITDA decreased 2.6% year over year to $107.4 million, while adjusted EBITDA margin contracted 30 bps to 1.8% in the quarter under review. The metric includes a negative impact of $30 million due to the COVID-19 pandemic. In addition, SG&A expenses rose 3.5% year over year to $1,109 million.

Financial Status

Rite Aid ended the quarter with cash and cash equivalents of approximately $288.3 million, long-term debt (net of current maturities) of $3,322 million and total shareholders’ equity of $613.8 million.

Further, the company used cash for operating activities of $118.3 million in the fiscal first quarter. Going ahead, management does not anticipate positive free cash flow in fiscal 2021. Capital expenditure has been lowered from $350 million to $275 million.

Rite Aid boasts liquidity of roughly $1.7 billion with a revolving credit facility of nearly $1.52 billion.

Business Development

The company has sacked 254 corporate employees in both Retail Pharmacy and Pharmacy Services segments. Also, it cut down on expenses related to shrink, advertising, rent, travel and call center. This is expected to result in cost savings of more than $40 million in fiscal 2021. However, a restructuring expense of $7 million will be incurred in the fiscal year due to a reduction in corporate employees.

Further, Rite Aid expanded the Instacart delivery facility to more than 2,400 locations and received positive feedback for the same. Apart from this, it successfully completed the expansion of Pay and Go to all stores. This new facility is likely to speed up the process of prescription pickup, both in-store and at drive-through locations. Moreover, it is progressing well with the rollout of the Buy Online Pickup In Store initiative, which will offer better drive through and curbside pickup options. Also, the surge in demand for Tele Health in the wake of COVID-19 has led the company to accelerate the launch of Rite Aid Virtual Care.

The company now intends to remodel 45 stores in fiscal 2021 as compared to 75 stores guided earlier due to lesser permitting and construction activity as a result of COVID-19. The remaining 30 stores will be remodeled in the beginning of fiscal 2022.

Price Performance

In the past three months, this Zacks Rank #2 (Buy) stock has gained 8% compared with the industry’s 4.5% growth.

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Lowes Companies LOW, which presently carries a Zacks Rank #2, has an expected long-term earnings growth rate of 15.5%.

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