Rite Aid Stock Has a Lot to Prove on Wednesday
If there's life after a botched buyout for Rite Aid (NYSE: RAD), it has to start with a healthy financial report this week. The out-of-favor drugstore chain will post its fiscal third-quarter results shortly after Wednesday's market close.
Rite Aid was one of 2017's worst performing stocks, plummeting 76% for the year. Investors never caught a break, with the stock declining sharply in nine of the past 12 months. Rite Aid began the year all set to be acquired by Walgreens Boots Alliance (NASDAQ: WBA). Even though regulators had already shown a reluctance to approve the deal as initially proposed in late 2015 -- Rite Aid was trading at a healthy discount to the proposed buyout terms -- not even bears could fathom Rite Aid's shares closing out the year below the $2 mark. The stock was trading above $6 the day before the original $17.2 billion buyout was announced.
Earnings its way back
Analysts see revenue clocking in at $7.45 billion for the fiscal quarter ending in November. They also expect Rite Aid to post its third consecutive adjusted loss in Wednesday afternoon's report, but it's worth pointing out that all the adjusted deficits have been modest.
Momentum isn't on Rite Aid's side, and we're not just talking about the cascading share price. Rite Aid's comps declined 3.4% in its previous quarter, as a 4.6% slide in pharmacy sales combined with a 0.9% dip in front-end sales. New generic introductions at lower price points held back pharmacy-side sales, but the results still would have been negative.
Rite Aid has lost its way. The drugstore chain was clawing its way back into favor ahead of the Walgreens Boots Alliance buyout proposal. It was profitable with positive comps and growing sales, and that's obviously not where it's at right now.
Life has been hard for Rite Aid investors since regulators nixed the combination of the two drugstore chains. The consolation prize is a $4.375 billion windfall from the sale of 1,932 stores, and the pressing issue here is what a slimmed-down Rite Aid will look like. The proceeds that recently began trickling in will help Rite aid pay down its gargantuan debt, but can Rite Aid succeed with a smaller footprint of stores? Rite Aid was already struggling from slumping sales as the result of being excluded from some pharmacy networks. Stubborn pharmacy reimbursement rates have also been an issue.
Wednesday's report is important, as it's the out-of-favor chain's first report since it began handing over stores to Walgreens Boots Alliance. Rite Aid may still not have any real visibility as to what its operations will be like with a little more than half as many stores as it used to own, but since it had already warned of pharmacy margin pressure being a near-term concern, it could be that a lot of the potential bad news has already been discounted. Rite Aid may have been one of 2017's worst performers, but now it will have to step up as one of the first stocks to report fresh financials in 2018.
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