Rite Aid's crushing earnings report sends stock tumbling
Rite Aid's stock plummeted 28% on Thursday after a ghastly earnings report called into question the company's strategy for keeping up with its bigger drugstore competitors.
Driving the news: Despite inflation fueling revenue gains for companies throughout the economy, Rite Aid reported a 3.5% second-quarter decline in sales, which it said was due in part to a reduction in revenue from COVID vaccines and testing as well as store closures.
- On a same-store basis, front-end retail sales fell 0.3%.
- The company also lowered its profit outlook for its fiscal year.
Our thought bubble: Fending off CVS and Walgreens has proven to be exceptionally difficult for Rite Aid, which does not have the purchasing power or pharmacy management resources of its much-larger rivals.
- And with Amazon making a play for online pharmacy customers — not to mention Walmart, Target and dollar stores offering customers a convenient in-store alternative for pharmacy and retail products — Rite Aid is struggling to stick out.
The other side: Rite Aid CEO Heyward Donigan said on Thursday's earnings call that the company is delivering "meaningful cost control" in its pharmacy benefits management division and is planning "a large-scale reinvention of our front-end operations called the Rite Way."
- That effort will deliver $20 million to $40 million in "productivity and labor improvements" in the 2024 fiscal year, she said.
But, but, but: The performance "raises questions over the long term health of the chain," GlobalData managing director Neil Saunders wrote Thursday, adding that "it simply does not have the financial firepower or economies of scale to compete with bigger chains."