Update: Rite Aid Earnings Continue To Grow - Our Bull Case Stands

| About: Rite Aid (RAD)


The company announced its third quarter earnings.

As we expected, pharmacy sales registered strong growth for the company.

Increased full year outlook shows that the management is confident about the fourth quarter earnings growth.

Rite Aid (NYSE:RAD) announced its third quarter earnings - the company reported net income of $104.8 million, which turns out to be 10 cents per diluted share. The year-over-year growth in income is impressive. Rite Aid reported only $71.5 million in net income for the same quarter last year, and earnings per diluted share stood at 4 cents. Net income has grown by 46% during the last year. The growth in revenues, however, has not been as impressive as the growth in the bottom line. The company reported revenues of $6.7 billion, compared to $6.4 billion for the same quarter last year. The main reason for the impressive growth in earnings was the same store sales, which increased 5.4% year-over-year - consisting of a 1.6% increase in front-end sales and 7.2% pharmacy sales. Also, the increase in adjusted EBITDA and a lower LIFO charge contributed towards higher bottom-line growth.

The company increased its adjusted EBITDA during the third quarter, which stood at $332.8 million or 5% of revenues compared to $282 million or 4.4% of revenues in the same period last year. This increase in adjusted EBITDA is mainly due to the increased pharmacy gross profit driven by hiked pharmacy prescription revenues during the third quarter. However, the company's new generic drug purchasing and delivery arrangement with McKesson has partially offset the increased adjusted EBITDA. Rite Aid also increased its full year guidance which resulted in a rise in the stock price. The company increased its full year EPS estimate from 22-33 cents to 31-37 cents. It is a big improvement and shows that the company is confident in the growth over the next few months.

The growth in the bottom-line is in line with our expectations and it enhances our bull case. As we expected, the pharmacy sales are growing at an impressive rate, and the front end sales are also growing. Acquisition of RediClinic will further enhance the pharmacy sales and continue to support the growth in the bottom-line.

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Tagged: , Drug Stores, Earnings
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