Rite Aid Jumps on Surprise Profit
Apr 11th 2013 8:48PM
Updated Apr 11th 2013 8:50PM
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Rite Aid jumped as much as 20% today after the drugstore chain turned in its first full-year profit in six years.
So what: Higher margins from generic drugs, and an increased number of prescriptions, helped spur the turnaround. Despite a drop of same-store sales of 2%, the retail chain was still able to make a $0.13 per-share profit, thanks to an increase in gross margin from 24.9% to 31.7%. Analysts had expected a loss of $0.02 a share, and today's results were greatly improved from a year ago, when Rite Aid lost $0.18 per share. Sales were in line with estimates, dropping nearly 10%, as the company closed down stores over the last year.
Now what: Rite Aid is one of the cheaper stocks in the market based on price/sales ratio, so any step in the right direction is bound to send shares skyrocketing. Still, the retailer has a huge debt load on its hands, and declining same-store sales is always a concern, as well. The implementation of the Affordable Care Act could be a windfall for Rite Aid, however, as it's likely to add the number of prescriptions and drug sales nationwide, benefiting the country's No. 3 drugstore chain. Keep an eye on that issue moving forward.
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