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Why Rite Aid Stock Sank 27.1% in September

By Keith Noonan – Updated Oct 7, 2020 at 12:53PM

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The drop came on the heels of disappointing earnings guidance.

What happened

Shares of Rite Aid (RAD -3.04%) slumped 27.1% in September, according to data from S&P Global Market Intelligence. The stock fell after the company's second-quarter earnings release arrived with disappointing full-year earnings guidance. 

^SPX Chart

^SPX data by YCharts.

Rite Aid published Q2 results on Sept. 24, delivering sales and earnings results that came in ahead of the market's expectations. But its annual guidance came up short and prompted a substantial pullback for the stock. 

An arrow moving down over a bar chart.

Image source: Getty Images.

So what

Rite Aid posted adjusted earnings per share of $0.25 on revenue of $5.98 billion in the second quarter, while the average analyst estimate had targeted EPS of roughly $0.14 on revenue $5.74 billion.

Sales for the retail pharmacy segment climbed 4.4% year over year to reach roughly $4 billion in the second quarter, and pharmacy services revenue jumped 29.1% to reach $2 billion. The company's pharmacy services segment posted strong performance thanks in large part to membership momentum for its Medicare Part D coverage services, which notched 259,000 new members in the period.

Shares initially climbed in pre-market trading following the earnings beat, but the full-year guidance outlined in the company's Q2 call prompted a steep decline for Rite Aid's share price. 

Now what

Rite Aid stock has gained some ground early in October's trading. The company's share price has climbed 1.9% in the month so far. 

RAD Chart

RAD data by YCharts

Rite Aid is guiding for full-year sales between $23.5 billion and $24 billion, which came in ahead of the average Wall Street analyst target. But the company's expectation for a GAAP net loss between $140 million and $190 million and an adjusted profitability range between earnings of $0.09 per share and an adjusted loss as high as $0.67 per share came as a shock. The average Wall Street forecast was guiding for an adjusted profit of $0.38 per share on the year, and management's targets prompted a substantial sell-off for the stock.

The company has a market capitalization of $528 million and trades at just 0.02 times this year's expected sales.

Keith Noonan 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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