Rite-Aid: Bewildering Optimism 12 comments
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When considering a company for investment purposes, investors must be wary of managements that over promise and under deliver. One symptom of such a situation is over-optimism from managements in their quarterly reports and conference calls. Consider Rite-Aid (RAD), a U.S. drugstore chain. Deep down in the company's press release, management noted reduced profit expectations going forward from an already negative $500 million to a more negative $700 million. But the company's press release headlines read as follows:
- 8.5% EBITDA increase over prior year (as if debt, taxes, and depreciation are meaningless, all of which are higher than they were the previous year. Here are Buffett's thoughts on the practice of focusing on EBITDA.)
- "Sales Trends in Acquired Stores Improved" which means sales still dropped, but not by as much as before.
Furthermore, the following bullish statements appear on RAD's press release, while little color on the reasons for profit deterioration was provided:
- I am pleased to report a significant improvement in our operating results this quarter.
- Our team has been totally focused on delivering profitable sales and taking unnecessary costs out of the business, and it showed.
The conference call is even more riddled with tremendous exuberance. Reading management's comments on the press release and listening to the conference call alone would lead an investor to believe this company was profitable, or at the very least generated profits higher than those of last year...but this is not the case with Rite-Aid!
Meanwhile, as we discussed here, the company has to undergo a 10:1 reverse stock split just to maintain a stock price above $1 so that it can stay on the NYSE. The company is also trying to sell its stores and lease them back in order to pick up some short-term cash, despite the current dire real estate market!
Be wary of managements that can find a glass half-full in an empty glass.
Disclosure: None
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This article has 12 comments:
Pay no attention to the man behind the curtain! RA is all smoke and mirrors. They have no concept on how to run their stores, no marketing sense and no idea what motivates customers. I'm willing to bet that no one from their marketing department has been in a RA store since the Nixon administration based on what they think is appealing to customers. They spend millions and millions of dollars on Sunday circulars which do almost nothing. If they do drive customers, they just come in a cherry pick the stuff on sale, use coupons and leave. They'll probably end up making skating rinks or bowling alleys out of their stores. They are doomed.
You can't hold a gun to a persons head and keep threatening to cut hours
from payroll if you want to be successful.
A good manager, a good asst. and supervisor core who are motivated to
train willing employees, will make a successful buisness in a very short amount of time.
A smile and a hello, a clean store, and the right merchandise mix will
provide the returns investors are looking for.
Thanks for the time to vent~
Discouraged in Oregon
Its inevitable!
On Jan 22 01:10 AM Ex RAD Manager wrote:
> As long as the same top management team stays in place, all the real
> people in the stores will suffer and the c.s. and merchandising will
> suffer!
> You can't hold a gun to a persons head and keep threatening to cut
> hours
> from payroll if you want to be successful.
>
> A good manager, a good asst. and supervisor core who are motivated
> to
> train willing employees, will make a successful buisness in a very
> short amount of time.
>
> A smile and a hello, a clean store, and the right merchandise mix
> will
> provide the returns investors are looking for.
>
> Thanks for the time to vent~
> Discouraged in Oregon
Without the stores there is no rite aid.Spending money on worthless programs that supposed to increase moral but cutting payroll how is that helping moral? Give us the tools we need and enough payroll to the job and
customers will come. Cut the help back and increase the work load well.......
all I can say is it's not if but when. I work for the company and even I can see what's coming and I am not a downer by nature
In order for them to surpass CVS or Walgreens, they have to remember that they are a pharmacy first. There is a reason why their pharmacy sales are over same store front end sales. Focus on the pharmacy!!! Have a pharmacist be CEO like Walgreens and CVS. There is a reason why they are the top 2. Remove the useless junks on the shelf and keep them at a minimal. LESS IS MORE.