Rite Aid’s (NYSE:RAD) incredible run from below $8.00 to almost $24 last week is due to short-sellers getting squeezed. Short float topped 26.77%, so with limited shares available to close the bearish bet, RAD stock rose after its quarterly earnings. What did markets like about the results?
Rite Aid reported an adjusted EBITDA of $158.1 million. Prescription count grew 2.8% on a same=store 30-day equivalent while front end sales (excluding tobacco) rose 1.0%. Although scrutiny on tobacco peaked in the last quarter, the upcoming legal age of buying it should help lift sales. Markets no longer need to worry about more unknown restrictions on the market.
Better Balance Sheet
Rite Aid improved its leverage ratio to 5.9, down from 6.8 sequentially. If the pharmacy continues to generate improving cash flow, Rite Aid’s risk of bankruptcy should fall sharply. And after a $0.98 EPS (diluted) is a strong improvement over last year’s $0.33 EPS loss, shorts will have to leave RAD stock alone.
Rite Aid reported a decline in adjusted gross profit, due to higher markdowns and weak summer and seasonal sell-through. The inventory reduction should result in better gross margins in the quarters ahead.
Increased Medicare Part D membership and lower SG&A should also help attract Rite Aid stock buyers in the months ahead.
Rite Aid stock may slip to below $20 as the short-squeeze ends. But the stock could hold the double-digit levels in 2020 on a favorably declining debt leverage ratio.
