Rite Aid (RAD, Financial) shares dropped 5.58% to be valued at $8.38 by trading time on April 9, just a day after the company issued the full year EPS guidance of 2016 that was grossly under analyst expectations.
Rite Aid, however, did perform bettern than expected fourth quarter 2015 results with earnings of $0.12 a share surpassing several analysts’ predictions of $0.07 a share. This EPS raise included a rise of a few cents, when compared to a year earlier.
Let’s try to decipher the key takeaways from the fourth quarter earnings, which reflect the benefits in holding the stock for the long term.
Top and bottom lines show prominent surge, cash flow remains solid
Rite Aid’s revenues increased by 3.8% Y-o-Y to $6,847.9 million and exceeded analysts’ predictions of $6,754 million. The company’s growth was primarily driven by a 4.5% rise in comps.
According to America’s number three drugstore chain, its earnings surged during the quarter, thanks largely to a $1.72 billion tax credit. Rite Aid offered little or almost no guidance for fiscal 2016. Rite Aid has followed fellow drugstore chains in changing and broadening its business model to move further into the health and wellness sector.
According to the earnings report, Rite Aid had cash and its equivalents of $115.9 million along with long-term debt of $5,483.4 million. During the recently concluded quarter, the drugstore chain generated a cash flow of $175 million from its operations and incurred capital expenses of nearly $135 million.
Rite Aid just issued their fourth quarter earnings report that showed a 2016 EPS guidance of $0.19-$0.27 a share, much less than the expected $0.43 a share by Thomson Reuters’ analysts.
Focusing on comps growth
With regards to their managerial prowess, Rite Aid’s excellence in management can be reflected upon in the way it has managed its properties.
In the recent quarter, Rite Aid has relocated 3 stores, remodelled 115 stores, and expanded 2 others. With a total store count of 4,750, Rite Aid opened 1 new store while acquiring 2 others from independent operators and closing 5 non-profitable stores.
The pharmacy comps improved 5.7% during the quarter, despite the negative impact of 128 basis points thanks to the new generic drugs being introduced. Prescriptions at the stores rose 3.5% while front-end comps increased 2%. Prescription sales made up around 68.1% of total drugstore sales, with third-party prescription revenue added up to 97.5% of pharmacy sales.
For the coming fiscal year that ends in February 2016, the drugstore chain estimates same-store sales to be up 2.5%-4.5%. For fiscal 2016, the drugstore chain estimates capex of $650 million, of which nearly $105 million would be allocated to new and relocated stores.
Final analysis
Rite Aid is being given a ‘HOLD’ rating for the time being by leading analysts who base this decision on its strengths such as notable return on equity, revenue growth and compelling growth in net income. Going forward, it would be important to watch whether the actual quarter numbers match the estimates made by the drugstore chain to take an investment decision.
