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Rite Aid reported excellent quarterly results buoyed by strong sales growth and expanding margins. Earnings estimates have thus surged, sending this drugstore chain to Zacks rank No. 1 (Strong Buy).

About the Company

Rite Aid Corporation (RAD) is the third-largest retail drugstore in the U.S., based on revenues and number of stores. More than 25% of the U.S. population visits RAD's 4,604 stores at least once a year. The company's pharmacy operations accounted for 67.6% of fiscal 2013 total sales.

Excellent Quarterly Results

The company reported its operating results for its fiscal second quarter ended August 31 on September 20, 2013. Revenues for the quarter increased 0.8% primarily as a result of an increase in same-store sales, partially offset by store closings.

Net income for the quarter was $32.8 million or compared with a net loss of $38.8 million during the same quarter last year. The improvement in net income was primarily a result of an increase in adjusted EBITDA and a decrease in interest expense, partially offset by the loss on debt retirement.

Excluding one-time items, adjusted earnings of $0.8 per share were significantly better than the Zacks Consensus Estimate of a loss of $0.04 per share and the year-ago comparable quarter's loss of $0.05 per share. The company has been beating or meeting estimates of late, with an average quarterly positive surprise of 288% for the past four quarters.

Management Raises Guidance

After delivering better-than-expected financial results for the first-half of the fiscal and the anticipation of a stronger second-half performance, the management raised its fiscal 2014 guidance. They now expect net income to be between $182.0 million or $0.18 per share and $268.0 million or $0.27 per share.

Estimates Revisions

As a result of strong quarterly report and updated guidance, analysts have raised their estimates for RAD. Zacks consensus estimate for the current quarter now stands at $0.04 per share up from $0.03 per share, 30 days ago. The consensus estimate for the current year is also up to $0.22 per share from $0.14 per share earlier.

Rising estimates sent RAD back to a Zacks Rank No.1 (Strong Buy) on September 27, 2013.

The Bottom Line

With its strong national footprint and recent strategic initiatives like expanding the healthcare offering, growing Wellness+ and investing in its stores, the company should be able to expand its customer base and continue its strong performance in the coming quarters.

RAD is a Zacks Rank No. 1 (Strong Buy) stock. It also has a Zacks recommendation of "Outperform." Further the industry rank of 20 out of 265 indicated a strong likelihood of outperformance in the short- to medium- term.

RITE AID CORP (NYSE:RAD): Free Stock Analysis Report (email registration required)

Source: Bull Of The Day: Rite Aid