When Rite Aid (RAD) pushed up its quarterly earnings report early, there was no telling if it was good news or not. But on Jan. 4, the company shared the good news. Chances are now good that Rite Aid will be a $22 billion business and one that is profitable, thanks to cost cuts.
Rite Aid’s management did a good job in the earnings conference call. In addition to being upbeat, the team did unfortunately report EBITDA that was around $40 million lower than the previous quarter. This result contrasts with management’s expectations of profitability. Still, it will protect itself with tax benefit preservation through its NOL loss carryforward worth $2.7 billion.
Investors may infer that Rite Aid’s store sales to Walgreens (WBA) should give the former a positive lift in sales of generics. Investors may expect the majority of sales (at least 80 percent) will be for generic drugs.
In the third quarter, Rite Aid’s revenue fell 5.6% to $5.4 billion. Profits fell due to pharmacy reimbursement rate declines and lower prescription counts. Looking ahead, Rite Aid will have more profitable stores as wellness stores become a bigger mix. Such stores will make their way in key U.S. states, including California, New York, New Jersey, and Washington.
Takeaway
Rite Aid has plenty of debt, so its business recovery depends on the company quickly growing cash flow. With fewer stores, chances are good that management will deliver.
