RAD’s Recent Results and the Impact they had on its Stock Price
Navi Mumbai, Maharashtra -- (SBWIRE) -- 09/23/2013 -- On Sept 19, Rite Aid, Corp. reported its second quarter 2014 earnings with profits for the fourth consecutive quarter, and a jump in margins for generic drug sales. (Please refer this link for details of the event). The drugstore retail giant, ranked No. 3, operates in about 31 states across the US and specializes mostly in selling prescription drugs. The company is also known for diversifying into other front-end products. The split is roughly two-third and one-third between prescription drugs and other front-end products of Rite-Aid’s total sales annually.
The margin improvement is due to the sales of generic medications, since they are cheaper than drugs like Lipitor and Plavix whose patents expired two years ago. Given the fact that the number of suppliers have been decreasing for generic drugs, their costs have increased. This coupled with a better than expected performance in the first half led RAD to raise its revenue forecast for full year 2014 with EPS between $0.18 to $0.20 as opposed to $0.04 to $0.19 forecasted earlier.
Shares of Rite Aid rose 20% to $4.47 in the afternoon trading session on NYSE. With the front-end same store sales rising just as much as its pharmacy same store sales, the company looks well positioned for turning its fortunes around. Competitors like Walgreen and CVS Caremark have been also able to post profitable quarters mostly due to generic drugs.
So what are companies like Rite-Aid getting right about? The answer lies not just with internal positioning of sales and mix, but also the macro environment Rite-Aid operates in. As CEO, John T. Standley pointed out, the Obama administration's new healthcare law could also be good for business. The Affordable Care Act caters to 10 million new customers with healthcare insurance. Therefore, being a big player in the sector, RAD is all set to benefit from the projected $350 billion that the industry is expected to be worth by 2015.
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