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Why Rite Aid Is Sinking This Week

By Eric Volkman - Jun 24, 2021 at 5:25PM

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The company's latest guidance left much to be desired, to put it mildly.

What happened

Rite Aid (RAD 3.10%) stock was humming merrily along in the early part of this week, before it suddenly fell off a cliff Thursday. After the company reported its latest set of earnings that morning, the shares dived into negative territory on a week-to-date basis.

So what

Rite Aid's first quarter of fiscal 2022 was actually quite encouraging. Revenue for the big pharmacy chain operator crept 2% higher year over year to $6.16 billion, slightly exceeding the $6.13 billion average analyst estimate. That was due largely to an almost 6% rise in revenue in the core retail pharmacy segment, which comprised over 70% of total revenue.

Pharmacist and patient conferring at a pharmacy counter.

Image source: Getty Images.

On the bottom line, the company flipped to a non-GAAP (adjusted) net profit of $20.9 million, or $0.38 per share, from the Q1 2021 net loss of $2 million. That trounced prognosticator expectations of a $0.16 per-share profit.

Now what

If stocks traded purely on trailing performance, investors would likely have shot Rite Aid's share price to the moon on these numbers. They trade on potential, however, and that was the rub.

The healthcare company proffered guidance for the entirety of 2022 of $25.1 billion to $25.5 billion in revenue, with an adjusted, per-share net loss of $0.24 to $0.79. It believes results will be affected by declines in its Elixir pharmacy benefits manager, among other factors.

The former range is above the analyst consensus of $24.66 billion, but the latter is in shocking contrast to expectations of a $0.80 per-share net profit. Investors don't like such surprises, hence the sell-off.

Eric Volkman 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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