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Why Rite Aid's Q4 Earnings Caused the Stock to Tank More Than 20%

By Keith Speights – Apr 16, 2020 at 3:00PM

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The pharmacy chain's revenue growth wasn't enough to make investors happy.

Rite Aid Corporation (RAD 0.46%) stock could be causing whiplash for investors this year. In less than five months, the pharmacy chain's shares have had eight double-digit-percentage swings. And now you can add another one to the list.

The company announced its fiscal 2020 fourth-quarter and full-year results before the market opened on Thursday. Rite Aid's shares promptly plunged more than 20%. Here's why investors didn't like the pharmacy retailer's Q4 update.

Customer holding pill bottle in a pharmacy aisle

Image source: Getty Images.

By the numbers

Rite Aid reported revenue in the fourth quarter of $5.7 billion, up nearly 6% year over year. However, the revenue total wasn't enough to make Wall Street happy. The analysts' consensus estimate projected Q4 revenue of $5.59 billion.

The company announced a net loss from continuing operations of $343.5 million, or $6.43 per share, in the fourth quarter based on generally accepted accounting principles (GAAP). This was worse than the GAAP net loss from continuing operations of $255.6 million, or $4.83 per share, reported in the same quarter of 2019. 

On a non-GAAP adjusted basis, Rite Aid's net loss from continuing operations in the fourth quarter was $19.8 million, or $0.37 per share. This represented a regression from the net loss of $13.3 million, or $0.25 per share, posted in the prior-year period. It also failed to meet analysts' average estimate of a Q4 net loss of $0.15 per share.

Behind the numbers

There were a couple of factors behind Rite Aid's year-over-year revenue growth. The most important was a solid increase of around 244,000 members in the company's pharmacy services segment's Medicare Part D plans. This membership expansion fueled a 23.1% year-over-year jump in pharmacy services revenue in Q4 to $1.8 billion.

Rite Aid also benefited to a lesser extent from 0.6% year-over-year revenue growth in its retail pharmacy segment. The segment generated $3.99 billion in sales in the fourth quarter. Same-store sales from continuing operations rose 1.6% over the prior-year period. Pharmacy sales increased by 1.6% as the number of prescriptions filled jumped by 5%. Front-end same-store sales grew by only 0.1%, although excluding cigarette and tobacco products, the sales rose by 1.5%.

Rite Aid's bottom line deteriorated in the fourth quarter despite its revenue growth. The primary culprit was a significantly higher income tax expense. 

Looking ahead

The company announced in March that it expects full-year fiscal 2021 revenue between $22.5 billion and $22.9 billion, with a net loss between $91 million and $119 million. Rite Aid didn't change this guidance in its Q4 update.

Reimbursement rates are likely to continue to decline. The company probably won't be able to offset these declines with generic drug cost savings as much as it has in the past.

Rite Aid said that the impact of the COVID-19 outbreak so far hasn't been significant in fiscal 2021. However, the company noted that the impact of the viral pandemic on its business is "fluid and difficult to predict." 

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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