Rite Aid Earnings Preview

| About: Rite Aid (RAD)
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Rite Aid Corporation (NYSE:RAD), the third-largest retail drugstore in the U.S. based on revenues and number of stores, is scheduled to report its fourth-quarter 2012 financial results before the opening bell on Thursday, April 12, 2012. The Zacks Consensus Estimate projects a loss of 12 cents per share for the fourth quarter on revenues of $7,100 million.

Third-Quarter Recap

The drugstore chain operator posted a quarterly loss of 6 cents per share, which not only improved from the prior-year loss of 9 cents, but also outpaced the Zacks Consensus Estimate of a loss of 12 cents. Growth in same-store sales and reduced selling, general & administrative (SG&A) expenses had a positive influence on the results.

Rite Aid's revenues edged up 1.8% to $6,312.6 million in the quarter compared with $6,202.4 million in the prior-year period. The marginal increase in revenues was mostly attributable to growth in same-store sales, partially offset by store closings. Same-store sales for the quarter showed an increase of 2%. Total revenue moved past the Zacks Consensus Estimate of $6,278 million.

Fiscal 2012 Outlook

Rite Aid expects fiscal 2012 revenue to be between $25.85 billion and $26 billion based on same-store sales increase of 1.15% to 1.75%. The company expects net loss in the range of $325 million to $440 million (or 37 cents to 50 cents per share).

Zacks Consensus

The analysts covered by Zacks expect Rite Aid to post a loss of 12 cents per share for the fourth quarter of fiscal 2012, lower than the loss of 24 cents registered in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between losses of 7 cents and 17 cents a share.

For fiscal 2012, the Zacks Consensus Loss Estimate stands at 36 cents per share, lower than the previous fiscal loss of 64 cents. The current Zacks Consensus Loss Estimate for the fiscal ranges between 31 cents to 41 cents per share.

Agreement of Estimates

For the fourth quarter, only 1 of the 4 analysts covering the stock made an upward revision to the estimates, while none have revised the same in the opposite direction in the last 30 days. For full fiscal 2012, 1 analyst revised estimates in positive direction, while none of the analysts revised the same in the opposite direction, in the last 30 days.

Over the last 7 days, no movement in estimates was noticed either for the fourth quarter or for fiscal 2012.

Magnitude of Estimate Revisions

Positive earnings revisions by analysts in the last 30 days lowered the Zacks Consensus Loss Estimated for the fourth-quarter and fiscal 2012 by a penny each to 12 cents and 36 cents per share, respectively.

We believe that the positive estimate revision by analysts resulted from the company’s better year-over-year top-line performance during fourth-quarter 2012, as reflected through the preliminary sales result. According to the preliminary sales result, the company registered year-over-year growth of 2.5% in total drugstore sales to $7.118 billion from $6.947 billion recorded in prior-year quarter.

The increase in total sales was primarily driven by a 3% growth in total comparable sales, comprising 1.6%, 3.8% and 2.4% rise in same-store sales at front-end, pharmacy and prescription counts, respectively.

With no earnings revisions by the analysts over the last 7 days, the Zacks Consensus Estimates for the fourth quarter of 2012 and fiscal 2012 remained unchanged at a loss of 12 cents and 36 cents per share, respectively.

Surprise History

With respect to earnings surprises, Rite Aid has missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range of negative 14.3% to positive 50%. The average remained at positive 29.8%, suggesting that Rite Aid has surpassed the Zacks Consensus Estimate by that measure in the trailing four quarters.

Our Recommendation

In an effort to expand its pharmacy and clinical services, Rite Aid has applied additional resources such as the Wellness+ program for diabetes and the Flu Immunization program. We believe these programs will enable the company to increase its customer base as well as long-term profitability.

Moreover, the company is in the process of implementing various cost cutting initiatives including centralized indirect procurement of drugs, reduction of supply chain costs, debt reduction, etc. which will certainly improve the bottom line.

Headquartered in Camp Hill, Pennsylvania, Rite Aid operates in 31 states across the country and in the District of Columbia. As of March 31, 2012, the company operated 4,659 stores versus 4,711 stores in the same period last year.

Rite Aid, which competes with CVS Caremark Corporation (NYSE:CVS) and Walgreen Co. (WAG), currently, holds a Zacks #3 Rank, implying a short-term Hold rating on the stock. The company retains a long-term Neutral recommendation on the stock.