Retail Winners and Losers: Rite Aid, Bed Bath & Beyond, and Family Dollar

Shares of Rite Aid (NYSE: RAD  ) , Bed Bath & Beyond (NASDAQ: BBBY  ) , and Family Dollar (NYSE: FDO  ) were making big moves after reporting earnings on Wednesday and Thursday. Let's take a look at these companies and their financial performance in order to analyze what recent earnings announcements mean for investors.

Rite Aid continues on the way to recovery
Rite Aid is implementing an impressive turnaround, and investors have been spectacularly rewarded by management's efforts during the last few years. The stock was trading in the area of $1 per share in November 2011, and it made new highs for the year on Thursday after rising by nearly 9% to around $7 on the back of better-than-expected earnings for the fiscal year ended March 1, 2014

Source: Rite Aid.

Rite Aid reported GAAP earnings per share of $0.06, a material decrease, versus $0.13 in the same quarter of the prior year. However, when adjusting for one-time items such as LIFO inventory costs and debt retirement expenses, the company delivered net earnings per share of $0.10 versus $0.07 per share in the year-ago quarter. This was materially above Wall Street analysts' forecasts of $0.04 per share for the quarter.

Sales increased by 2.2%, to $6.57 billion, in line with estimates of $6.54 billion for the quarter. Same-store sales grew 2.1% during the period, with pharmacy sales growing 3.5%, and front-end sales declining by 0.7%.

Importantly, forward guidance was particularly encouraging. Management expects earnings per share for fiscal 2015 to be in the range of $0.31 to $0.42 on revenues of between $26 billion and $26.5 billion. This compares favorably versus analysts' forecasts of $0.35 in earnings per share and $25.58 billion in revenue for the quarter.

Store base restructuring and cost efficiencies seem to be generating solid results, and Rite Aid looks ready to refocus on growth in the coming quarters. Investors in the company have good reason to applaud the recent earnings report.

Bed Bath & Beyond can't leave winter behind
Shares of Bed Bath & Beyond were crashing by nearly 6.5% on Thursday after the company delivered disappointing financial figures for the fourth quarter of fiscal 2014, which ended on March 1.

The company had already warned about the damage inflicted by harsh weather conditions due to the unusually cold winter, but the latest earnings announcement, including disappointing guidance, seems to be indicating that Bed Bath & Beyond's cold performance can't be completely attributed to external factors such as the weather.

Source: Bed Bath & Beyond.

Net income per diluted share came in at $1.60 per share, lower than the $1.68 per share the company earned in the same period of 2013, and in line with Wall Street estimates. Sales fell from $3.4 billion to $3.2 billion during the quarter, lower than the $3.22 billion expected on average by Wall Street.

Forward guidance was particularly weak. Bed Bath & Beyond is forecasting earnings for the coming quarter in the range of $0.92 to $0.96, considerably below analysts' estimates of $1.02 per share.

The housing recovery is providing a tailwind for the company, but growing competition from both online and brick-and-mortar retailers seems to be outweighing the positive effect from growing housing sales. Unfortunately for investors in Bed Bath & Beyond, things seem to be getting worse before they turn for the better for the home goods retailer.

Family Dollar is downsizing
Family Dollar reported dismal sales and earnings figures for the quarter ended on March 1. Sales declined from $2.9 billion in the previous year to $2.7 billion on the back of a 3.8% decrease in same-store sales.

Source: Family Dollar.

Operating margin fell from 7.5% of sales to 5.16%, and earnings per share suffered a big hit, falling by 34% year over year to $0.8 per share versus an average estimate of $0.9 per share by Wall Street analysts.

Management blamed the difficulties during the period on factors such as a challenging economic scenario, a promotional competitive environment, and harsh weather conditions -- echoing many other companies in the industry.

Family Dollar will implement a series of initiatives to adapt to industry headwinds, like reducing its workforce, closing approximately 370 underperforming stores, and cutting prices on nearly 1,000 basic items to reinvigorate sales. But margins and profits will most likely remain under pressure in the coming quarters.

It's good to see management trying to take responsibility for the company's financial performance as opposed to simply blaming industry conditions. However, it looks like Family Dollar could be facing increased difficulties in the medium term.

Bottom line
Rite Aid was the big winner among the companies that were moving in reaction to earnings on Thursday. Bed Bath & Beyond and Family Dollar, on the other hand, are facing serious difficulties, and things could get more complicated before turning for the better for these companies. 

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Andrés Cardenal

Andres Cardenal, CFA is a tenacious researcher of the best investment opportunities around the world. Andres is an economist and CFA Charterholder living in Buenos Aires, Argentina. Naturally flavored. Follow me on Twitter for more investment ideas:

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