Yahoo Finance Can Rite Aid (RAD) Stock Bounce Back on Growth Endeavors?
Rite Aid Corporation RAD has been witnessing underperformance in front-end sales in the Retail Pharmacy Segment and a higher-than-expected medical loss ratio at Elixir Insurance. Also, reduced transactions in its stores due to drab demand for respiratory-related products, inventory issues and inefficient pricing act as deterrents.
This led to a sluggish year-over-year performance in first-quarter fiscal 2024. The adjusted loss of 73 cents per share was wider than the prior-year quarter’s loss of 60 cents. Revenues declined 6% from the year-ago quarter to $5,356.2 million due to the reduction in the company’s Prescription Drug Plan membership and the loss of commercial clients at Elixir, partly offset by increased Retail Pharmacy segment revenues stemming from higher pharmacy sales.
For fiscal 2024, management expects revenues of $22.6-$23.0 billion, suggesting a decline from the $24 billion reported in the prior year. Adjusted EBITDA is envisioned to be $330-$360 million, indicating a rise from last year’s reported figure of $429.2 million.
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Consequently, shares of RAD have lost 35.4% in the past three months compared with the industry’s decline of 12%.
Efforts to Counter Hurdles
Rite Aid has long been benefiting from the expansion of delivery services to its customers. Some notable efforts in this space include home delivery service to customers with an eligible prescription with the benefit of zero delivery fees; pickup and drive-through services for prescriptions and over-the-counter products at its stores; and the Buy Online Pickup In Store initiative.
Continued strength in on-demand delivery, third-party marketplaces, and buy online, pick up at store options has been upsides. Earlier, management expanded Uber Eats, Postmates and Instacart delivery services. It also made partnerships with Amazon and Instacart for home delivery; DoorDash to offer same-day delivery of non-prescription health, convenience and wellness essentials; ScriptDrop to expedite the prescription delivery process; and Shipt to provide same-day delivery of health and wellness products to Rite Aid’s retail footprint across 17 states. In a recent development, Rite Aid collaborated with Afterpay to offer the service of shop online and pay later. Also, Rite Aid launched its loyalty program, Rite Aid Rewards, to expand its customer base to improve customer engagement in pharmacy and front-end sales.
RAD collaborated with Grubhub to deliver the former's drugstore products to customers in more than 2000 locations across 16 states with the benefit of zero delivery fees on orders of $12 or above. Rite Aid also partnered with Quest Diagnostics, which commercializes PCR tests, with which RAD has been able to expand the PCR test offering to all stores.
As part of its corporate strategy and growth plan, Rite Aid is focused on strengthening its foothold in mid-market PBM, innovation across its retail and mail-order pharmacy channels, enhancing in-store experience by curated digital offerings, improved merchandises, and rebranding its image with a new logo. RAD earlier launched its first three Stores of the Future and concluded the acquisition of Bartell, which will help expand its customer base.
Rite Aid earlier revealed plans to lower costs via the closures of 145 unprofitable stores, reduced corporate administrative expenses and enhanced efficiencies in worked payroll, and other store labor costs. These cost initiatives and store closures generated $5 million in savings in the fiscal first quarter.
Coming to Elixir Insurance, it achieved 275,000 life memberships in the first quarter of fiscal 2024. Notably, Rite Aid announced the exit of the individual Part D market beginning in January 2024. Post this, Elixir will remain in the group Medicare Part D market and continue to offer employer group waiver plans across all 50 states, the District of Columbia and Puerto Rico. Continued investments and stringent cost management bode well. Going forward, it is focused on increasing its market presence, growing the Elixir membership and establishing the Elixir Insurance Part D business.
Earlier, Rite Aid renewed its largest Medicare Advantage client and has won a number of Medicare Advantage health plans for 2023. In another development, RAD launched 546 products. It has also been on track to open small-format pharmacies in underserved rural markets such as Indiana, upstate New York and Virginia. Notably, it opened a Rite Aid Pharmacy in Grottoes, VA, marking the company's fourth store in rural Virginia. Prior to this, the company opened Rite Aid Pharmacy stores in Craigsville, Greenville and Scottsville, VA.
Rite Aid’s Retail Pharmacy segment has long been a key growth driver. In the first quarter of fiscal 2024, the segment’s revenues rose 3.4%, driven by increased acute and maintenance prescriptions, somewhat offset by reduced COVID-19 vaccine and testing revenues, and store closures.
Retail Pharmacy same-store sales moved up 8.4%, driven by a 13.3% rise in pharmacy sales, somewhat offset by a 4.4% decline in front-end same-store sales. Prescription count at same-store sales, adjusted to 30-day-equivalent, rose 4.7% on the back of non-COVID-19 prescriptions (up 7.4%), acute prescriptions (up 6.8%) and maintenance prescriptions (up 7.6%). Prescription sales constituted 73.9% of overall drugstore sales. For fiscal 2024, the Retail Pharmacy segment’s revenues are anticipated to be $18-$18.3 billion.
Conclusion
We believe that expanded delivery services, increased non-COVID prescriptions, and cost-saving initiatives will likely offset demand woes and aid this Zacks Rank #3 (Hold) company in the near term. Also, a Momentum Score of B bodes well.
Stocks to Consider
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Abercrombie & Fitch, a specialty retailer of premium, high-quality casual apparel for men, women, and kids, currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Urban Outfitters, which engages in the retail and wholesale of general consumer products, currently sports a Zacks Rank #1. The expected EPS growth rate for three to five years is 18%.
The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings suggests growth of 57.1% from the year-ago reported number. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 5.5%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales suggests growth of 4.2% from the year-ago period’s actual. WMT has a trailing four-quarter earnings surprise of 12%, on average.
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