Nation’s Third Largest Drugstore, Rite Aid’s Stocks Take A Serious Dive Post Poor Earning Expectations

Drugstore business has apparently been less profitable than last year. Rite Aid, the country’s third largest drugstore chains, faced a strong backlash from investors who caused the stocks to plummet dangerously.

The slide comes after the company posted poor revenue expectations. The drugstore chain said it now expects to earn between $298 million and $408 million, or 30 cents to 40 cents per share, in fiscal 2015. A while earlier, in April, the company appeared to be in a much better position and expected earnings to be between $313 million and $423 million or 31 cents to 42 cents per share.

Though the revision isn’t much, the news wasn’t taken kindly by investors who began dumping shares. Perhaps the company’s expectations about its adjusted earnings could have helped add to the panic. Rite Aid also said it expected adjusted earnings in its fiscal first quarter, which ended May 31, to trail its performance in last year’s quarter. The company will post results from the latest quarter on June 19.

This year has been good for Rite Aid though, reported CS Monitor. Last month, Rite Aid’s revenue from stores climbed 3.5 percent on a year-on-year basis. Pharmacy revenue rose 5 percent, while sales from the front end, or the rest of the store, were also up, albeit slightly.

Needless to say, revenue from the stores that have been running for more than year are a critical indicator of a retailer’s financial health. This is because these relatively old stores do not have the volatility of the recently opened or shuttered stores.

Just how bad was the damage? Rite Aid confirmed its stock fell more than 9 percent or 79 cents, to $7.71. These figures were reported less than an hour before trading started on Thursday.

Despite the fall, Rite Aid stock is still doing well if the company’s overall performance on the stock market is considered, reported The Street. The shares have actually climbed 68% so far this year and that is by far one of the best performances. The stock had actually plummeted just below $1, and clearly, investors are now returning.

What helped Rite Aid? The company has managed a rebound for two reasons. Rite Aid essentially worked hard to clean up its balance sheet. But more importantly, it strongly cut its losses by simply shuttering under-performing stores. These simple steps have helped Rite Aid report six consecutive profitable quarters, which is nothing to scoff at in these difficult times.

[Image Credit | The Motley Fool]