Strong Pharmacy Sales Boost Rite Aid's Q3, but Its Outlook Falls Short

The third-largest drugstore in the U.S., Rite Aid (NYSE: RAD  ) , reported its third-quarter results before the opening bell this morning, pointing to a bifurcated sales environment within its stores of higher pharmacy sales and weaker front-end sales.

For the quarter, Rite Aid reported a 1.9% increase in revenue to $6.36 billion from $6.24 billion in the year-ago period which was fueled, in its entirety, by a 3.5% increase in pharmacy sales and countered by a 0.2% decline in front-end sales. Total prescriptions filled increased by 0.7% as prescription sales amounted to nearly 69% of total drugstore sales. Focusing on its pharmacy business is extremely important for Rite Aid with the upcoming implementation of Obamacare, which could greatly expand the number of prescriptions written.

Overall, same-store sales improved by 2.3%, which is an important figure as it excludes stores opened within the past 12 months and gives investors a better indication of Rite Aid's organic growth capabilities.

Looking at the bottom line, Rite Aid delivered net income of $71.5 million, a 15.6% increase over the prior year. However, a $0.03 charge related to the redemption of preferred stock knocked its EPS down to $0.04 from the $0.07 it reported last year.

Where the wheels fell off the bus was Rite Aid's updated fiscal 2014 outlook, which includes a revenue range of $25.3 billion to $25.425 billion, a same-store sales increase of 0.35%-0.85%, and EPS of between $0.17 and $0.23 per share. Previously, Rite-Aid had guided investors to expect $0.18 to $0.27 in EPS for fiscal 2014, thus investors' disappointment with its outlook.

Shares of Rite-Aid were down just shy of 10% by midday.

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  • Report this Comment On December 19, 2013, at 3:39 PM, oldfart65 wrote:

    If you invest in RAD, a turnaround story, you have to understand 2 things. You need to get comfortable with an ugly story and be prepared for a lot of volatility. I spent 10 years handling large severely troubled loans for a major bank. You would be surprised how many (but not all) of the worst situations can be turned around with the right management and innovative thinking. The issue with a public company is that you often have to take actions which hurt earnings in the short term to gain a long term benefit. In a market where "long term" means 2 days, you are going to get big swings.

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