Ticktacktoe -- will tomorrow's earnings news make it three bad quarters in a row for Rite Aid (NYSE:RAD)?

What analysts say:

  • Buy, sell, or waffle? Rite Aid has shed one analyst in the last two months. Of those remaining, two rate the stock a buy, three a hold, and three a sell.
  • Revenues. First-quarter 2007 sales are expected to rise 2% in comparison with last year and reach $4.3 billion.
  • Earnings. Profits look to be headed the other way, though, with analysts predicting a 40% drop to just $0.03 per share.

What management says:
If you go by what 8-K filings the firm hands over to the SEC, you could be forgiven for thinking Rite Aid hasn't said much of interest since releasing its annual earnings results back in April. Check the firm's own website, however, and you'll see it actually has quite a lot to say. The news of most recent interest is, of course, the June sales report. There we see that Rite Aid edged out analyst sales estimates by posting 2.7% growth for the first quarter. Same-store sales were actually stronger than total firmwide sales, growing 3.6%, but that's because the company closed 1% of its stores.

In last quarter's earnings report, Rite Aid management had targeted same-store sales improvement of only 1.75% to 3.25% for this year. While there's still a long way to go between now and the end of fiscal 2007, the firm is off to a great start.

What management does:
Sales-wise, at least. It remains to be seen how profitably Rite Aid was able to make those sales. At last report, Rite Aid's rolling gross margins were back up close to the level they were at one year ago. Operating margins continue to slide, however. And although the number in the bottom-right corner of the chart below looks pretty impressive on the surface, I wouldn't give it a whole lot of weight: Last quarter's net results were almost entirely composed of one-time charges and benefits, not the least of which was a one-time tax benefit of $1.82 per share. In a quarter in which the firm earned a total of $1.83 per share, I'd say that had a pretty significant effect on the net.

Margins %

11/04

2/05

5/05

8/05

11/05

2/06

Gross

24.8%

27.4%

25.3%

25.2%

25.2%

27.2%

Op.

3.0%

3.1%

2.8%

2.7%

2.5%

2.3%

Net

0.8%

1.8%

1.6%

1.6%

1.5%

7.4%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
In April, Rite Aid credited Medicare Part D as contributing significantly to its strong rise in pharmacy same-store sales. This is a relatively recent phenomenon, however. It remains to be seen how profitable all the new Medicare prescription drug business is going to be for Rite Aid. My guess? Not enough to keep that net margin at 7% plus. Then again, when you're operating in the 1.5% net margin range to begin with, it wouldn't take additional profitability to greatly magnify the net earnings produced by Rite Aid's now-growing revenues.

Competitors:

  • Walgreen (NYSE:WAG)
  • Wal-Mart (NYSE:WMT)
  • DrugMax (NASDAQ:DMAX)
  • Dollar General (NYSE:DG)
  • CVS (NYSE:CVS)

Did you miss Rite Aid's earnings report last quarter? Get the lowdown from Stephen Simpson in Rite Aid Regains Respectability.

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Fool contributor Rich Smith does not own shares of any company named above.