Driven by higher adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA) and lower interest
expenses, drugstore chain operator
Rite Aid Corp.
) posted a quarterly profit for the fourth consecutive quarter.
The company's second-quarter fiscal 2014 adjusted earnings of 8
cents per share fared better than the Zacks Consensus Estimate of
loss of 4 cents and the year-ago comparable quarter's loss of 5
Rite Aid's adjusted earnings per share for the reported
quarter does not include a charge of 7 cents from a loss on debt
retirement, and a recovery of 2 cents related to settlement of
the prescription drug antitrust case. Including the one-time
items, Rite Aid's earnings for the quarter came at 3 cents per
This Zacks Rank #3 (Hold) company, which competes with
China Nepstar Chain Drugstore Ltd
), has witnessed 11 straight quarters of improved adjusted
EBITDA. Better-than-expected quarterly results prompted
management to raise its adjusted EBITDA and earnings outlook for
Consecutive quarters of positive earnings and an upbeat
guidance boosted shareholders' confidence, which was reflected in
the company's share prices. The stock hit a new five-year high of
$4.65 yesterday, before closing at $4.58, approximately 23.5%
higher than the previous day's closing price.
Rite Aid's second-quarter revenues inched up nearly 0.8% year
over year to $6,278.2 million and surpassed the Zacks Consensus
Estimate of $6,265.0 million. The year-over-year increase in the
top line was driven by improved comparable-store sales, partially
offset by store closures. Comparable-store sales in the quarter
were up 1.0% due to rise in pharmacy sales, slightly offset by
weak front-end sales.
During the quarter, pharmacy sale increased 1.7% despite
having a negative impact of 249 basis points (bps) due to the
introduction of new generic drugs. Additionally, prescriptions
filled at comparable stores remained flat year over year.
Prescription sales constituted about 67.9% of total drugstore
sales, while third-party prescription revenues represented 97.0%
of the pharmacy sales. However, Rite Aid's front-end sales dipped
0.3% for the reported quarter.
Rite Aid's gross profit increased 6.2% year over year to
$1,816.4 million, with gross margin expanding 148 bps to 28.9%,
primarily driven by the launch of new generic drugs. Selling,
general and administrative (SG&A) expenses decreased 0.9% to
$1,602.9 million while as a percentage of sales it contracted 44
bps to 25.5% primarily due to effective cost management.
Rite Aid reported adjusted EBITDA of $341.6 million, up 56.2%
from $218.7 million in the prior-year quarter. As a percentage of
sales, it improved 193 bps to 5.4%, gaining from higher gross
margin and lower SG&A expenses as a percentage of
Balance Sheet and Cash Flow
At quarter-end, Rite Aid had cash and cash equivalents of
$144.2 million and long-term debt (excluding current maturities)
of $5,915.8 million. The company ended the quarter with $1,029.0
million of liquidity. Rite Aid had $677.0 million of outstanding
debt under its $1.795 billion senior secured credit facility and
$90.0 million of outstanding letters of credit.
During the first half of fiscal 2014, the company generated a
cash flow of $263.9 million from operating activities and
incurred capital expenditure of nearly $206.5 million (gross).
For fiscal 2014, the company expects capital expenditure of
Rite Aid stores continue to undergo renovation with 109
outlets being remodeled in the second quarter. Additionally, 5
stores were relocated. At the quarter-end, the company, overall,
completed wellness remodels at about 1,019 stores.
Moreover, during the quarter, the company closed twelve stores
and acquired one store bringing the total store count as of Aug
31, 2013 to 4,604 stores.
Fiscal 2014 Guidance
On the back of better-than-expected first-half financial
results and the anticipation of a stronger second-half
performance than projected earlier, management raised its fiscal
2014 guidance. However, Rite Aid cautioned that the performance
may be subdued for the remainder of fiscal 2014 on a
year-over-year basis comparison due to a possible rise in
pharmaceutical costs, lower benefit from new generic drugs -
since most of these drugs are included within the company's
portfolio - and persistent reimbursement rate pressure.
For fiscal 2014, the company raised its adjusted EBITDA
guidance range to $1,240.0-$1,300.0 million from
$1,090.0-$1,175.0 million projected earlier. Furthermore, Rite
Aid raised its fiscal 2014 earnings guidance range to 18-27 cents
per share, up from its previous guidance of 1-16 cents.
Currently, the Zacks Consensus Estimate stands at 14 cents per
share, which could witness an upward revision following the
company's upbeat guidance.
Moreover, Rite Aid, which trails only
CVS Caremark Corp.
) in size, raised its lower-end sales guidance to $25.1 billion
from $24.9 billion projected earlier, while the upper-end of the
guidance range $25.3 billion remain unchanged. Rite Aid also
narrowed its comparable-store sales forecast for the fiscal to
the range between a decline of 0.5% and a rise of 0.5% from the
earlier range of a decline of 0.75% and an increase of 0.75%.
CVS CAREMARK CP (CVS): Free Stock Analysis
CHINA NEPSTAR (NPD): Free Stock Analysis
RITE AID CORP (RAD): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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