Rite-Aid (NYSE: RAD), a competitor of CVS (NYSE: CVS) and Walgreen (NYSE: WAG), tanked Thursday. By the end of the trading session, the pharmacy's stock declined almost 23% on heavy volume. Yes, it was a horrible day in the market overall, but don't blame the market at large. Rite-Aid is simply a company to avoid, and its latest earnings data show why.
According to the AP, Rite-Aid booked a loss of $0.20 per share for its fiscal first quarter versus a profit of $0.04 per share in the year-ago period. There are some growing pains going on here, since Rite-Aid is attempting to integrate its purchase of Brooks Eckerd. That acquisition propelled the company to top-line revenue growth of 48%. Unfortunately, analysts were looking for the company to lose only $0.09 per share. The significant differential made investors feel justified in punishing the stock. Heck, I'll bless the sell-off myself.
It'll be a long time before Rite-Aid finally turns its ship around. The next fiscal year will bring more losses, and with strong competition out there from CVS and Walgreen, the road ahead for management won't be for the faint of heart. This is truly a speculator's stock. I took a look at a post I wrote on Rite-Aid back near the beginning of April. At that time, the stock was priced at about $2.89 per share. As of Thursday's close, the shares were trading for $1.35. The Rite-Aid story belongs in the horror genre, and its stock is best left to those professionals who don't mind losing money. Individual investors? This company isn't for you, in my opinion.
Disclosure: I don't own any company mentioned; positions can change at any time.
Walgreen (NYSE: WAG) reported sluggish Q3 numbers last week. Net sales increased a little under 10% to $15 billion. Net income increased a whopping two pennies to 58 cents per diluted share (the term "whopping" is used here sarcastically). According to this article, Walgreen met top-line expectations but missed the bottom-line call by a penny.
Gross margin remained relatively stable, but the net margin dropped to 3.8% in the quarter compared to 4.1% in the previous year's similar period. But same-store sales increased 3.4%, which is a decent number. Also, operational cash flow jumped over 19% to $2.5 billion. That's excellent; it's always good to see cash coming in. It helps mitigate the tepid earnings expansion. Walgreen did well with its cash-flow statement last time around as well. Walgreen management cited the economy as a factor in its earnings stats and highlighted the fact that it cut back on expenses, including advertising. Making sure costs don't get out of hand is important, but I'd be careful about eliminating too much of the advertising budget. Competing with CVS Caremark (NYSE: CVS), Rite-Aid (NYSE: RAD), and the pharmacy at Wal-Mart (NYSE: WMT) obligates brand-building and differentiation.
Walgreen's Q3 wasn't beyond awesome, but it was solid enough. The stock is only down slightly as I write this. As a long-term play on the need for drugstores, it's not a bad way to go.
Disclosure: I don't own any company mentioned; positions can change at any time.
The inner city of my midwestern home town has long been plastered with ads for paternity testing services, which I see as a sad commentary on our society. Today's New York Times reports that this service has become even easier, via an at-home test kit now for sale in Rite Aid (NYSE:RAD) drug stores in the Northwest.
The Identigene kit from Sorenson Genomics retails for $29.99. It contains three cotton swabs- one each for child, mother and father-candidate. After each has wiped a swab against his/her inner cheek (or DNA-containing material is otherwise collected), they are mailed to the Sorenson labs. Results are returned within about five days.
The company does not represent this test as admissable evidence for legal purposes, but will set up the proper chain of evidence for an additional $200. Sorenson told the NYT it already sells over 1,500 kits per month via the internet, and expects this new venue to drive more traffic.
I wonder if this might be enough to convince young and carefree serial fathers to finally take responsibility for their actions by adopting condom use. Obviously, morals and concern for their own health have not. Maybe their wallet is their soft spot.
With Wal-Mart Stores Inc. (NYSE: WMT) and Target Corp (NYSE: TGT) set to challenge the traditional drug store chains as they lower prices on prescription generic drug, what is in store for national chains like CVS Corp (NYSE: CVS) and Walgreens? You'd never know that CVS feels threatened, yet, especially after the retailer reported rising sales for the September same-store sales period.
No surprise, since the full effect of Wal-Mart's massive move, which is only available in Florida for now, has not yet shaken up the retail drug industry. Add Target into that mix, and by this time next year, the heat may indeed be on, having a large impact on CVS and Rite-Aid among other. Rite-Aid is also in the midst of buying national drug retailer Brooks Drugstores from Canada's Jean Coutu.
CVS increased its third-quarter EPS guidance range to 31 to 33 cents from a previous range of 28 to 30 cents -- but a few more quarters of upped guidance may be all that's left in store for CVS and other retailers as they start feeling the heat of Wal-Mart and Target. Will they match the new 40% discounts on over 300 generic prescription drugs in an attempt to keep customers? If not, what do you think -- will Rite-Aid, CVS and Walgreens have a rosy or dark 2007?
Eckerd and Brooks Drugstores, which were purchased by Canada's Jean Coutu Group just a few years ago, are being brought back under American ownership, as the Rite-Aid chain has agreed to purchase both companies back from Jean Coutu for $2.55 billion (excluding debt). The goal is to make Rite-Aid the largest drugstore chain on the U.S. East Coast.
The move will put Rite-Aid on the level of drug retailing giants Walgreen's and CVS Drugstores. CVS, actually, ended up purchasing about half of the former Eckerd chain back in the 2004 sale, with half the Eckerd Stores going to CVS and half to Jean Coutu. Many Eckerd drugstores were then re-branded CVS all over the nation where the Eckerd stores that weren't sold to Jean Coutu were located.
It's kind of ironic that the Eckerd brand is being re-purchased again and will probably be re-branded Rite-Aid once the acquisition is complete and the sale is final. Jean Coutu will gain a 32% stake in the new Rite-Aid under terms of the deal, and Rite-Aid's acquisition will include 1,858 drugstores -- including 337 Brooks stores, 1,521 Eckerd stores and six distribution centers. All these locations are primarily on the East Coast and in the Mid-Atlantic states.
Brian White has worked in various executive positions in technology and telecommunications and now focuses on editing and writing.
Walgreen
The inner city of my midwestern home town has long been plastered with ads for paternity testing services, which I see as a sad commentary on our society. Today's 
With Wal-Mart Stores Inc. (NYSE: WMT) and Target Corp (NYSE: TGT) set to challenge the traditional drug store chains as they lower prices on prescription generic drug, what is in store for national chains like CVS Corp (NYSE: CVS) and Walgreens? You'd never know that CVS feels threatened, yet, especially after the retailer 
Eckerd and Brooks Drugstores, which were purchased by Canada's Jean Coutu Group just a few years ago, are being brought back under American ownership, as the Rite-Aid chain has 
Comfort Zone Investing: Getting beyond today
Stock picks and pans for troubled times: RIMM, ED, ISRG, GLW, LEA, SLB, GOOG ...
Is Berkshire Hathaway better than S&P Index?
