Will Generic Market Trends Mar Rite Aid (RAD) Q2 Earnings?

Rite Aid CorporationRAD is slated to report second-quarter fiscal 2019 results on Sep 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 fiscal first quarter, the company reported loss of 1 cent per share, which lagged the Zacks Consensus Estimate of break-even results. It 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 loss per share of 1 cent for the fiscal second quarter, which is in line with the year-ago quarter. We note that the Zacks Consensus Estimate has witnessed a decline in the last 30 days. Further, Zacks Consensus Estimate for revenues of $5.37 billion, down 30.1% from the prior-year quarter.

Rite Aid Corporation Price and EPS Surprise

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

Furthermore, Rite Aid's shares have declined 11.4% in the past month against the industry 's increase of 3.9%, reflecting a negative sentiment on the stock ahead of the earnings release. This could be attributed to the company's dismal performance trends as well as the recently lowered view for fiscal 2019 as the generic drug market remains unfavorable.

Factors at Play

As mentioned above, Rite Aid stock is struggling as evident from its dismal earnings and sales graphs. In first-quarter fiscal 2019, earnings lagged estimates after two straight quarters of positive surprise while sales topped after three consecutive misses. Bottom-line results were primarily hurt by an increase in interest expenses, higher lease termination and impairment charges as well as higher transaction costs. Moreover, sales dipped on account of soft comps as well as decline in revenues at the Retail Pharmacy segment.

Further, management notes that trends in the generic drug market have not been favorable lately. Consequently, Rite Aid slashed the outlook for fiscal 2019 in response to the recent generic drug bid activity that altered anticipated projections for this market for the rest of the year. It revealed that the generic drug purchasing efficiencies are likely to be $80 million lower than initially guided.

The company now estimates adjusted EBITDA of $540-$590 million for fiscal 2019, marking a significant decline from the initial guidance of $615-$675 million. Net loss is now projected between $125 million and $170 million compared with the previous guidance of $40-$95 million. It now anticipates adjusted net loss per share of 4 cents to break-even against the prior expectation of adjusted net earnings per share of 2-6 cents.

However, Rite Aid is optimistic about executing its strategic plan as a standalone company after the termination of the merger with Albertsons. Its focus on leveraging retail pharmacies, EnvisionRxOptions PBM and wellness offerings remain encouraging.

Additionally, the shift of e-commerce fulfillment to the company's own distribution network is boosting customer experience. This has reduced delivery lead time, lowered cost and helped increase online offering by 25%. Further, the company's own brand program is supporting efforts to build tailored offerings that are specific to each local market.

Though these efforts enhance the company's prospects, we remain a little skeptical about the near-term performance due to its dismal past trends and lowered outlook for fiscal 2019.

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 #4 (Sell), which makes surprise prediction difficult.

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:

Tractor Supply Company TSCO currently has an Earnings ESP of +0.49% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here . Inc. AMZN has an Earnings ESP of +8.93% and a Zacks Rank #2.

PepsiCo Inc. PEP has an Earnings ESP of +0.24% and a Zacks Rank #2.

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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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