The third largest retail drugstore in the U.S. based on revenues and number of stores, Rite Aid Corporation (RAD), recently posted its fourth-quarter 2011 results.
Street analysts have had nearly a week to ponder the news. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.
Quarterly Review
On April 07, 2011, Rite Aid reported a loss of 24 cents per share for the fourth quarter of 2011, which was in line with the prior period loss. However, quarterly loss was above the Zacks Consensus Estimate of a loss of 21 cents per share. Higher termination and impairment charges offset the positive impact from improved gross margin coupled with lower selling, general and administrative (SG&A) expense and LIFO charge.
Rite Aid’s revenues came in flat at $6,456.5 million over the prior year. Same-store sales for the quarter showed a marginal increase of 0.9%. Over the quarter, the company relocated 4 stores, remodeled 2 stores and closed 17 stores. Total revenue beats the Zacks Consensus Estimate of $6,379.0 million.
Management’s Guidance for 2012
Rite Aid expects fiscal 2012 revenue to be between $25.7 billion and $26.1 billion based on same-store sales increase of 0.5% to 2.0%. Net loss is now expected to be in the range of $370 million to $560 million (or 42 cents to 64 cents per share).
(Read our full coverage on this earnings report: Rite Aid Misses as Charges Rise)
Agreement of Analysts
Estimate revision trends for the upcoming first and second quarter of fiscal 2012 portrayed negative sentiments among most of the analysts covering the stock. Over the last 7 days, 4 out of 5 analysts following the stock revisited their estimates, of which 1 upgraded and 3 downgraded their estimates for the first quarter of 2012. Moreover, for second-quarter 2012, 4 analysts revisited their estimates in the last seven days and all have lowered their estimates.
In addition, 4 analysts revisited their estimates for fiscal 2012 and all have adjusted it in downward direction in the last 7 days. However, for fiscal 2013, two analysts have revisited their estimates, of which one has upgraded and the second one has downgraded their estimates in the last 7 days.
Magnitude of Estimate Revisions
The magnitude of estimate revisions for Rite Aid depicts a pessimistic outlook for the first and second quarters of 2012 and full fiscal 2012 and 2013. Over the last 7 days, estimated losses for first and second quarters of fiscal 2012 have been increased by 3 cents each to 13 cents and 19 cents, respectively. While for fiscal 2012 and 2013, estimated loss has been increased by 8 cents and 2 cents to 57 cents and 43 cents, respectively.
Our Recommendation
In the United States, pharmacy sales growth has slowed down due to longer FDA approval process, drug safety concern, loss of individual health insurance resulting from unemployment and an increase in the use of non-branded drugs, which are less expensive but generate higher gross margin. Due to these factors, the company’s same-store-sales are expected to remain weak.
The company has reported loss for the last fourteen consecutive quarters. Moreover, Rite Aid’s generic drug sales are negatively affected by Wal-Mart Stores Inc.‘s (WMT) strategy of entering the retail generic drug market. Due to Wal-Mart’s broad array of manufacturers in India, Israel and the U.S., the mass merchant can offer generic drugs at a discounted price compared with the average $10 generic drug co-pay.
However, the company is in the process of adopting various cost cutting initiatives including centralized indirect procurement of drugs, administrative headcounts requirement, reducing supply chain costs, lowering debt, etc., which will certainly benefit the company to improve its bottom line.
Rite Aid, which competes with CVS Caremark Corporation (CVS) and Walgreen Co. (WAG), currently, holds a Zacks #3 Rank, implying a short-term Hold rating on the stock. Besides, the company retains a long-term Underperform recommendation on the stock.
CVS CAREMARK CP (CVS): Free Stock Analysis Report
RITE AID CORP (RAD): Free Stock Analysis Report
WALGREEN CO (WAG): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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