Rite Aid (NYSE:RAD) stock skyrocketed after the company reported its third-quarter earnings on Thursday. The retail pharmacy company results came in well ahead of the market's expectations. The beaten-down stock jumped roughly 42% in the day of trading following the early morning release.
Sales for the quarter came in at $5.46 billion, nearly flat year over year but topping the average analyst target's call for sales of $5.41 billion. Rite Aid posted a non-GAAP (adjusted) profit of $0.96 per share, crushing the average earnings call for a loss of $0.01 per share. Rite Aid also improved its full-year earnings target ranges on the heels of the better-than-expected third-quarter results.
Rite Aid is still in turnaround mode, but the relatively strong performance delivered under the new management team appears to be sparking a resurgence in investor confidence. Read on for a closer look at the third-quarter results and three takeaways from the company's earnings call.
1. Solid store results and impressive momentum for EnvisionRx
Revenue from the company's retail pharmacy segment declined 1.7% year over year to $3.91 billion, which was actually a solid performance given that the company had closed 62 stores since the end of last year's third quarter. Same-store front-end sales (excluding tobacco products) and same-store prescription volumes each increased in the quarter.
Rite Aid's front-end comps grew 1% year over year, while prescription volumes grew 2.8% year over year thanks to momentum for clinical pharmacy services. The pharmacy services segment grew 5.7% year over year to reach revenue of $1.61 billion.
The company also saw encouraging results for its EnvisionRxOptions pharmacy benefit management (PBM) unit. The division's sales climbed 5.7% year over year to reach roughly $1.6 billion, and adjusted EBITDA climbed by $7.9 million (growth of 19.1% year over year) to hit $49.5 million. Revenue for the division rose thanks to increased Medicare Part D enrollment, and EBITDA climbed thanks to efforts made to improve EnvisionRx's network efficiency.
Here's CEO Heyward Donigan on the conference call discussing the progress at EnvisionRx and plans to further integrate assets at its PBM unit with Rite Aid pharmacy retail operations:
EnvisionRxOptions is one of our most important assets, and we're bullish on its growth potential. Up to this point, Rite Aid and EnvisionRxOptions have largely operated as separate entities. During the quarter, we began to take significant steps toward building tighter organizational alignment and realizing greater operational synergies. We've begun the process of integrating our technology infrastructure, standardizing both associated benefits and other back-office functions to streamline costs, processes, and foster strong operational collaboration. And this work is just beginning.
Combined with solid retail results and the company's efficiency-improvement initiatives, momentum for EnvisionRx helped push the company's adjusted earnings from continuing operations to $0.54 per share -- up roughly 93% year over year. The average analyst estimate, as polled by FactSet, had called for adjusted earnings from continuing operations to come in at $0.10 per share.
2. The buyout days are in the rear view
Prior to the earnings report, Rite Aid stock had traded down roughly 41% across 2019 and had lost roughly 95% of its value over the preceding three-year period. Shareholder dissatisfaction stemmed from declining store performance, lack of confidence in the company's previous management team, and a series of stalled acquisition and merger bids.
The company completed the sale of 1,932 of its stores to Walgreens Boots Alliance in 2018 and had failed mergers with both Walgreens and Albertsons in the same year, but the new management team wants investors to know that its priorities have shifted. Here's Chief Operating Officer Jim Peters making the company's new direction clear in the conference call:
As you can probably sense, our direction has changed course 180 degrees. We are focused on our bright future with renewed energy and optimism. We are ... an independent entrepreneurial company with hungry battle-ready associates and I assure you, we're not going to wait around and let others dictate our future. We will operate ourselves, we will drive the change, we will own the results. I'm excited to be working alongside our more than 50,000 associates as we strive to exceed the needs of our customers and take the next steps in executing our long-term strategy.
3. Full-year guidance gets a boost, but the turnaround will take time
Rite Aid updated its full-year guidance and is now guiding for a GAAP net loss between $174 million and $204 million, an improvement from its previous guidance range for a loss between $235 million and $275 million on the year. Adjusted earnings per share are expected to be between $0.13 and $0.55, with the previous target having called for adjusted full-year earnings to come in between a break-even level and a per-share profit of $0.56.
The company maintained its guidance for annual revenue to be between $21.5 billion and $21.9 billion -- and same-store sales growth to come in at a range between flat and up 1%. The new earnings targets were a pleasant surprise, but Rite Aid management was keen to remind investors that its turnaround will be a lengthy process.
Donigan, who took over as CEO in August as part of the company's big leadership team revamp, acknowledged that delivering two strong quarters was not enough and detailed some of the initiatives she has underway to make sure the business stays on track:
We have conducted extensive research focusing on retail consumers, PBM clients, and PBM prospects, as well as digging deep to understand our competitors' value propositions to both consumers and clients. This research has informed us as we consider our Rite Aid's brand positioning, our merchandising, the design of our stores, and our new omni-channel experience for Rite Aid consumers. We are focused on enhancing the role that our pharmacists play and delivering clinical solutions to our consumers. We're pursuing strategic partnerships with health plans and providers to help them better engage consumers on their healthcare journey, as we are on the front lines of healthcare delivery in America.
Rite Aid will be holding an analyst day conference on Mar. 16 and expects to share more details about its business revamp and guidance for the next fiscal year.