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Why Rite Aid's Q1 Results Rocked

By Keith Speights – Jun 25, 2020 at 2:00PM

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Here's how the pharmacy retailer blew past Wall Street estimates with its fiscal Q1 2021 results.

It's been a dismal year for the stocks of pharmacy chains. Rite Aid (RAD 17.45%) is no exception, with its shares down 17% year to date as of the market close on Wednesday.

But the company announced its fiscal first-quarter 2021 results before the market opened on Thursday. Now, 2020 isn't looking so dismal for Rite Aid after all. Here are the highlights from the pharmacy retailer's Q1 update.

Pharmacist at pharmacy counter helping a client.

Image source: Getty Images.

By the numbers

Rite Aid reported revenue from continuing operations in the first quarter of $6.03 billion. This reflected an 11% increase from the prior-year period total of $5.37 billion. It also handily beat analysts' consensus estimate of $5.61 billion.

The company reported a net loss in its fiscal Q1 of $72.7 million, or $1.36 per share, based on generally accepted accounting principles (GAAP). This represented improvement, though, from Rite Aid's GAAP net loss of $99.3 million, or $1.88 per share, in the prior-year period.

Wall Street pays more attention to companies' adjusted (non-GAAP) bottom lines. Rite Aid didn't disappoint, posting an adjusted net loss in Q1 of $0.04 per share. That figure was a move in the right direction compared to its adjusted net loss of $0.14 per share in the prior-year period, and a lot better than the net loss of $0.38 per share expected by analysts.

Behind the numbers

Rite Aid has two reporting segments: retail pharmacy and pharmacy services (which includes its pharmacy benefits management business). The big winner in the Q1 was the pharmacy services segment. Revenue for the unit soared 26.2% year over year to $1.98 billion, with this growth fueled mainly by increased Medicare Part D membership.

The company's retail pharmacy segment also performed well. Sales increased 6.7% year over year to $4.12 billion. The chief factor behind his improvement was front-end store sales. Rite Aid reported that its front-end same-store sales jumped 16% from the same quarter in fiscal 2020. The company attributed this improvement to increased sales of cleaning products, sanitizers, wipes, paper products, and liquor, as well as over-the-counter medications and summer seasonal items.

Rite Aid's solid revenue growth helped boost its bottom line. The company also benefited from a LIFO (last in, first out) credit in fiscal Q1 2021 compared to a LIFO charge in the prior-year period, a sizable income tax benefit in the recent quarter, and lower costs related to corporate restructuring.

Looking ahead

Because of the uncertainty with the severity and duration of the COVID-19 pandemic, Rite Aid withdrew its previous fiscal 2021 guidance. However, the company is expecting to generate positive free cash flow during fiscal 2021. Rite Aid is counting on reduced costs and capital expenditures, along with improving its working capital, to help achieve this goal.

Like other companies in the healthcare sector, Rite Aid could face continued challenges from the COVID-19 pandemic. CEO Heyward Donigan acknowledged these challenges and specifically pointed out the decline in prescriptions for acute conditions and the company's higher costs related to ensuring the safety of its workers and customers during the pandemic.

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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