The Q2 Earnings Bump Is Not a Signal to Buy Rite Aid Stock

Rite Aid stock beat earnings but the stock is still down nearly 70% from a year earlier

Rite Aid (NYSE:RAD) jumped more than 20% last week after exceeding second-quarter earnings guidance. The boost came at a good time. Rite Aid stock has struggled over the past year as it’s been forced to close stores because of slow sales.  

 The Q2 Earnings Bump Is Not a Signal to Buy Rite Aid Stock
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It’s also the first earnings report from new CEO Heyward Donigan. Donigan stepped in as CEO in August, replacing former chief executive John Stanley. Company leadership is hopeful that Donigan can revive the company and this latest earnings report is a step in the right direction. 

A Closer Look at Rite Aid Stock

Let’s review the bad news first. Rite Aid’s overall sales still came up short during the second quarter. Wall Street was expecting revenue to hit $5.41 billion but the company brought in $5.37 billion in revenue. And sales fell at all Rite Aid locations that have been open for at least a year or more.

However, the company did surpass adjusted earnings expectations. Adjusted earnings came to 12 cents per share, instead of the 7 cents per share analysts were expecting.

Rite Aid also updated its full-year guidance and reiterated its revenue guidance of $21.5 billion to $21.9 billion, but the company lowered its earnings guidance and now expects adjusted earnings to be between zero and 56 cents. Previously, the company said it expected earnings to be between 14 and 72 cents. 

Rite Aid also expects to lose more money than it originally anticipated. The company is now projecting losses between $235 million to $275 million instead of the previous range of $170 million to $220 million.

The Bottom Line on Rite Aid Stock

At first glance, this latest earnings report really isn’t that great. The company fell short on sales, it’s still losing money, and it lowered its adjusted earnings guidance. Does that merit a 20% jump in RAD stock price? 

Whenever a company is in decline, investors tend to lower the bar for the stock. So it’s not that Rite Aid’s earnings were that great, they just weren’t as bad as many people were anticipating. 

That being said, there are some positive nuggets to glean from the latest earnings report. Although in-store revenue was down, Rite Aid did see a 2.7% increase in prescription orders. But the company is unable to take advantage of the opportunities available in the healthcare industry because it has to cut costs and downsize.

Many analysts aren’t too optimistic when it comes to RAD stock. Of the few analysts still reviewing the company, all recommend selling or holding Rite Aid stock.

Ultimately, investors are stuck in a wait-and-see pattern when it comes to the company. The coming year should show whether Donigan is truly able to turn the company around. 

As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.

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