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Can Rite Aid (RAD) Beat on Earnings in Q1 Despite Soft View?

Zacks Equity Research

Rite Aid Corporation RAD is slated to report first-quarter fiscal 2020 results on Jun 26. The company pulled off positive bottom-line surprises in the last two quarters. Its average beat is 77.2% for the trailing four quarters.

The Zacks Consensus Estimate for the fiscal first-quarter earnings is pegged at 2 cents, whereas it witnessed loss per share of 20 cents in the year-ago quarter. Estimates remained unchanged in the last 30 days. Further, the consensus estimate for revenues stands at $5.37 billion, which suggests a decline of 0.3% from the year-ago reported figure.

Rite Aid Corporation Price and EPS Surprise


Rite Aid Corporation Price and EPS Surprise

Rite Aid Corporation price-eps-surprise | Rite Aid Corporation Quote

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Rite Aid is progressing well on its growth strategy, which focuses on leveraging unique opportunities such as EnvisionRxOptions PBM, enhancing front-end channels and transforming processes to deliver operational efficiency. Further, the company is focused on leveraging retail pharmacies as well as health and wellness offerings. These efforts have significantly contributed to the company’s top and bottom-line growth in the past, which is likely to be reflected again in the upcoming quarterly results.

The company’s quarterly results also validated strong progress in boosting retail and pharmacy benefits management businesses through a successful immunization business and other clinical pharmacy services. This has resulted in significant rise in the prescription count at comparable stores as well as increased prescription sales over the past several quarters. With continued strength in retail and pharmacy sales, we expect this trend to continue in the first quarter of fiscal 2020.

Furthermore, with a view to capturing the demand for CBD products, the company plans to start selling CBD creams, lotions and lip balms at stores in Oregon and Washington, beginning April 2019.

Additionally, the company remains keen on boosting customer experience, both online and in-store, as part of its efforts to boost market share. It has been doing this through the remodeling of wellness stores. Further, the company shifted e-commerce fulfillment from a third-party provider to its own distribution network to boost customer experience. This has reduced fulfillment lead time, lowered costs and helped to increase online offerings by 25%. These actions should again bolster top-line growth in the to-be-reported quarter.

However, the company’s soft outlook for fiscal 2020 is a cause of concern for investors. Revenues are anticipated to be $21.5-$21.9 billion for fiscal 2020. Further, it now envisions the bottom line between loss of 1 cent per share and earnings of 4 cents.

Further, softness in tobacco sales, owing to regulation changes, which restricted selling tobacco in some New York stores and in over-the-counter cough-cold and flu products, is affecting front-end sales. This along with higher expenses in distribution centers, particularly higher labor costs due to the aforementioned realignment of stores, hurt overall gross profit in fourth-quarter fiscal 2019. Persistence of these headwinds may be a threat to the company’s margins again in first-quarter fiscal 2020.

A Look at the Zacks Model

Our proven model does not conclusively predict that Rite Aid is likely to beat estimates this quarter. This is because a stock needs to have — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Rite Aid currently has a Zacks Rank #2, which increases chances of an earnings beat. But its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Constellation Brands Inc STZ currently has an Earnings ESP of +4.42% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Helen of Troy Limited HELE presently has an Earnings ESP of +0.60% and a Zacks Rank #2.

Darden Restaurants, Inc. DRI currently has an Earnings ESP of +1.16% and a Zacks Rank #3.

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