Rite Aid Implodes Despite CEO Optimism
Rite Aid (NYSE: RAD) reported its fiscal Q1 results and shares are down 15% in the wake of it. At face value, the report looks good and the CEO appears optimistic, the problem lay in the guidance. Despite an expectation for improving revenue and revenue above the consensus estimates the company’s probability is still in question. While there is a chance the company's loss for the year will be less than expected there's also a chance it will be worse than expected and that's hard news to take in a world where so many S&P 500 companies are doing so well.
Rite Aid Returns To Growth But It's Not Enough
Rite Aid's fiscal Q1 Revenue results prove the company has returned to growth. The $6.16 billion in consolidated revenue is up sequentially, up 2.2% from last year, and 14.7% over the last two years but it was not enough for the market. The revenue missed the consensus by $50 million or 80 basis points and is compounded by what we consider to be iffy guidance. On a segment basis, the Retail Pharmacy segment, which is about two-thirds of net revenue, grew about 5.5% on a continuing basis while the Pharmacy Services segment grew 5.3%.
Moving down the report, the margins are improving but the company is still producing a net loss at the GAAP level. Adjusted EBITDA is up 29.3% from last year while the net loss from continuing operations decreased 82% to only $13 million. On the bottom line, the GAAP eps of -$0.24 beat the consensus by more than $0.30 while the adjusted EPS of $0.38 beat by $0.32.
Looking forward, the company is expecting revenue momentum to continue in fiscal 2022 and has guided higher because of it. Rite Aid is now expecting $25.10 to $25.50 billion in revenue compared to the $24.70 billion expected by the analyst. The problem, at least in our eyes, is that while the expected net loss is a range bracketing consensus it is a wide range. Rite Aid is expecting the net loss to total - $0.79 to - $0.24 compared to the $0.46 expected by the analysts. This range opens the door to better-than-expected results but as we mentioned before, it also opens the door too much worse than expected results.
No Reason To Buy Rite Aid Now
Aside from the iffiness in the earnings report, there are other reasons not to love Rite Aid right now. For one, it’s trading at 25X its adjusted earnings compared to its competitors CVS and Walgreens Boots Alliance and both of those stocks pay dividends. Rite Aid is not paying a dividend while CVS is yielding 2.4% and Walgreens boots Alliance is yielding 3.6%. Both of those stocks are trading at roughly 10X and 11X their earnings presenting quite a bargain. And they have positive earnings too. There may be reasons to want to buy Rite Aid right now but we don't know what they are.
The Technical Outlook: Rite Aid May Be Heading Lower
Shares of Rite Aid are down 15% in the wake of the Q1 earnings release and may be headed lower. The caveat is that the stock is now sitting just above potentially strong support but it may not hold up. The short interest was over 15% at the last report and is likely higher now. A move below the $17.25 level is potentially bearish and could lead this stock down to the $15 or $12.50 level.
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