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Why Rite Aid Stock Surged Today

By Jeremy Bowman – Jun 25, 2020 at 12:33PM

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Shares of the drugstore chain rose after a better-than-expected earnings report.

What happened

Shares of Rite Aid (RAD 17.45%) were moving higher after the nation's No. 3 drugstore chain turned in a better-than-expected earnings report, beating estimates on the top and bottom lines. The stock was up 24.4% as of 10:28 a.m. EDT.

So what

Rite Aid's first quarter, which ended May 30, was deeply impacted by the COVID-19 pandemic, but for the most part, results improved in spite of challenges.

A pharmacist helping an older man

Image source: Getty Images.

Same-store sales increased 6.6% in the period, driven by strong performance in the front-end business as items like cleaning products, paper products and over-the-counter medicines saw strong sales. Overall, front-end comparable sales were up 14.2%, or 16% excluding tobacco and cigarettes, while pharmacy comps rose 2.2%.  

Pharmacy services revenue jumped 26.2% to $1.98 billion due to a increase in Medicare Part D membership, and overall revenue jumped 12.2% to $6.03 billion, which easily beat estimates of $5.61 billion.

The pandemic impacted bottom-line performance with adjusted EBITDA slipping from $110.3 million to $107.4 million. COVID-19 had an estimated $30 million net negative impact due to increased payroll costs and a reduction in acute prescriptions as Americans held off on doctor visists.

Nonetheless, the company narrowed its adjusted per-share loss from $0.14 a year ago to $0.04, which crushed analyst expectations for a loss of $0.38.

CEO Heyward Donigan said, "Our Retail Pharmacy teams responded to the COVID-19 crisis by taking immediate action to maintain our supply chain and stay in stock, enhance our digital experience, quickly implement safety measures, keep our stores open and provide outstanding service, all of which helped us drive double-digit front-end sales growth and gain retail market share."

Now what

Rite Aid withdrew its guidance for the fiscal year given the uncertainty around the pandemic, but it reported strong results through June, with comparable sales accelerating to 7.2% through the first three weeks of the month. Same-store prescription counts were up 80 basis points, in spite of headwinds in acute prescriptions, which were down 11.7%.

Management also said it expected to generate positive free cash flow for the year and reduce costs, showing progress in its turnaround.

Jeremy Bowman owns shares of Rite Aid. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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