Can Rite Aid's (RAD) Strategies Reverse Earnings Trend in Q1?

Rite Aid CorporationRAD is slated to report first-quarter fiscal 2019 results on Jun 27. The big question facing investors is whether this drug store retailer will be able to deliver a positive earnings surprise in the quarter to be reported.

In the last reported quarter, the company reported a positive surprise, with loss of 1 cent per share, beating the Zacks Consensus Estimate of loss of 2 cents. Further, the company has topped estimates in two of the trailing four quarters. Let's see how things are shaping up prior to this announcement.

What to Expect?

The Zacks Consensus Estimate suggests that the company is likely to post break-even results for the quarter under review, against loss of 5 cents per share reported in the year-ago quarter. We note that the Zacks Consensus Estimate has been stable in the last 30 days. Further, analysts polled by Zacks expect revenues of $5.35 billion, down 31.2% from the prior-year quarter.

Rite Aid Corporation Price and EPS Surprise

Rite Aid Corporation Price and EPS Surprise | Rite Aid Corporation Quote

However, Rite Aid's shares have surged 11.8% in the past month, outperforming the industry 's increase of 1.7%. This could be attributed to the optimism arising from the completion of store sales to Walgreens WBA and the pending merger deal with Albertsons. Clearly, there is positive momentum for the stock, ahead of the fiscal first-quarter earnings release.

Factors at Play

Rite Aid stock is witnessing an increase due to positive developments such as its recent merger deal with grocer Albertsons Companies. The transaction is expected to close in the second half of the calendar year 2018. Moreover, Rite Aid's efforts to boost market share through wellness remodeling and other strategic initiatives bode well. The company remodeled 38 outlets and relocated six stores in fourth-quarter fiscal 2018. As of Mar 3, 2017, it had 1,805 wellness stores.

Furthermore, in fourth-quarter fiscal 2018 earnings call, Rite Aid outlined a robust initial view for fiscal 2019. The company anticipates benefiting from generic drug purchasing efficiencies, a stable reimbursement rate environment compared with fiscal 2018, and TSA fees related to the Walgreens deal along with other initiatives to grow sales and drive operational efficiencies.

The company estimates sales of $21.7-$22.1 billion in fiscal 2019 with comps anticipated to be flat to up 1%. Further, the company expects adjusted net income per share of 2-6 cents compared with loss of 2 cents per share reported in fiscal 2018.

However, the company's dismal past performances, particularly the top line, remain concerns. Though its bottom-line results surpassed estimates in fourth-quarter fiscal 2018, sales lagged for the third straight quarter. Moreover, both earnings and sales dropped year over year. While the bottom-line beat was attributed to the improvement in reimbursement rates, it declined year over year due to the fall in adjusted EBITDA, higher Walgreens deal-related costs along with increased lease termination and impairment charges. Further, sales dipped on account of soft comps as well as the decline in revenues at Retail Pharmacy and Pharmacy Services segments.

Though the company's future prospects look bright, owing to the pending acquisition, solid fiscal 2019 outlook and other strategies, we remain a little skeptical about the near-term performance due to the company's dismal past trends.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Rite Aid is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Rite Aid has an Earnings ESP of 0.00% and carries a Zacks Rank #3. While the company's Rank increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Helen of Troy Limited HELE currently has an Earnings ESP of +3.57% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

The Kroger Company KR has an Earnings ESP of +0.81% and a Zacks Rank #3.

Darden Restaurants Inc. DRI has an Earnings ESP of +0.09% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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