What happened

Shares of Rite Aid (NYSE:RAD) were surging for the second day in a row today, following a surprisingly strong quarterly profit that the drugstore chain reported on Thursday. After jumping 42% yesterday, the beaten-down stock was up another 25% as of 2:02 p.m. EST.

So what

On the top line, Rite Aid said same-store sales fell 0.1% in the quarter as prescriptions filled increased 2.8% but performance was impacted by the introduction of generics and, on the front end, lower cigarette and tobacco sales.

A woman pharmacist helping an older man get a prescription

Image source: Getty Images.

Revenue from continuing operations rose from $5.45 billion to $5.46 billion, ahead of expectations of $5.42 billion. It was driven by 5.7% growth in the company's pharmacy services segment due to an increase in Medicare Part D membership. 

However, the real reason the stock surged was the surprising jump in profit, as adjusted net income from continuing operations jumped from $0.28 to $0.54, which was much better than expectations of $0.09. New CEO Heyward Donigan credited "tight expense control and prescription count growth in our retail pharmacies, which benefited from solid growth in immunizations." 

Now what

Part of the reason Rite Aid shares have nearly doubled in the last few days is that the stock had fallen so far to begin with. The company has $3.6 billion in debt that's hampering its ability to make investments in its turnaround. Earlier this year, the company did a 1-for-20 reverse split to stay in compliance with the New York Stock Exchange. 

However, investors seem hopeful that a new CEO can help turn things around, especially after the earnings beat. For the full year, the company sees revenue growing between flat and 1%, to $21.5-$21.9 billion, and expects adjusted earnings per share of $0.13-$0.55, compared to estimates at just $0.05.

While Rite Aid clearly faces challenges, the stock would seem to have a lot of potential, considering that peers like CVS and Walgreens are solidly profitable. The new management team will share more at an Investor Day conference in March.