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One-Time Termination Fees Boost Rite Aid’s Reported Earnings

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Dec. 4 2020, Updated 10:53 a.m. ET

Rite Aid’s 2Q17 earnings

Rite Aid (RAD) reported 2Q net earnings of $170.7 million, or 16 cents per share, as compared to $14.8 million, or one cent per share, during the same period last year. However, this increase was driven by a one-time merger termination fee of $325 million, which Rite Aid received from Walgreens (WBA), as it failed to complete the proposed acquisition.

In June, Walgreens scrapped its proposed merger with Rite Aid, as it could not convince the FTC (Federal Trade Commission) to approve the deal. The pharmacy giant later proposed purchasing half of the stores but finally succeeded in getting approval for 1,932 Rite Aid stores in mid-September. 

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Adjusted earnings continue to fall

After adjusting for one-time termination fees, the company reported a net loss of $15.6 million, or one cent per share, as compared to $36.4 million, or 3 cents per share, last year. The adjusted EPS was in line with analyst expectations.

Rite Aid reported a 2Q17 gross margin of 23.3%, down 60 basis points as compared to last year. The company’s margins have fallen drastically over the last couple of years. Its gross margin was as high as 29% in fiscal 2013. Deterioration in profitability has mainly resulted from lower reimbursement rates over the years.

Investors looking for exposure in Rite Aid through ETFs can invest in the First Trust Consumer Staples AlphaDEX Fund (FXG), which invests 1.2% of its portfolio in the company.

A look at competitors’ earnings

Rite Aid’s larger competitors have managed to deliver solid results. Walgreens, which is expected to post quarterly results in late October, is likely to record a 13% YoY increase in earnings to $1.31 per share. CVS Health (CVS), which reported results in August, recorded EPS (earnings per share) of $1.33 and outdid the Wall Street expectations by two cents.

Move on to the next section to read about Rite Aid’s stock price performance and Wall Street recommendations.

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