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Discussing Rite Aid’s Fiscal Q1 2019 Margins

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Rite Aid’s fiscal Q1 2019 earnings

Rite Aid (RAD) reported adjusted net income from continuing operations of -$11.5 million, or -$0.01 per share, in the fiscal first quarter of 2019 compared to an adjusted net income of -$9.2 million, or -$0.01 per share, in the same quarter of last year. The company, however, delivered results that were in line with Wall Street’s expectations.

Competitor CVS Health (CVS), which reported quarterly results in early May, delivered its ninth consecutive earnings beat. Its adjusted diluted EPS rose 26.5% YoY (year-over-year) to $1.48, beating analysts’ consensus estimate by $0.07.

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What drove Rite Aid’s margins?

The adjusted gross profit of Rite Aid’s Retail Pharmacy segment improved 83 basis points to 28.1% of sales during the quarter. Behind this improvement were higher reimbursement rates and lower drug costs. The segment’s adjusted EBITDA margin expanded 71 basis points to 2.9%, primarily driven by gross margin improvement. However, the segment recorded a higher SG&A (selling, general, and administrative) expense rate due mainly to negative expense leverage resulting from lower sales comps.

The Pharmacy Services segment’s adjusted EBITDA margin, however, contracted 100 basis points to 2.2% of sales. Margin compression in the commercial business and higher SG&A investments drove the decline.

“During the first quarter our Retail Pharmacy Segment delivered strong results with an increase in Adjusted EBITDA compared to the prior year for the second consecutive quarter, while our Pharmacy Services Segment results reflect the operating investments we made to support growth,” said John Standley, Rite Aid’s chair and CEO.

As a result, the company’s overall adjusted EBITDA increased 23 basis points to 2.7% of sales during the quarter.

Move on to the next article to read about RAD’s recent stock price performance and analysts’ recommendations on the stock.

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