Rite Aid Corp. (RAD) reports preliminary financial results for the quarter ended 2012-08-31.
Rite Aid Corp. (RAD) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.
Rite Aid Corp.’s analysis versus peers uses the following peer-set: Sugi Holdings Co. Ltd. (7649-JP), COSMOS Pharmaceutical Corp. (3349-JP), Tsuruha Holdings Inc. (3391-JP), Brazil Pharma S.A. (BPHA3-BR), Ain Pharmaciez Inc. (9627-JP), cocokara fine Inc. (3098-JP), MEDIQ N.V. (MEDIQ-NL), Create SD Holdings Co. Ltd. (3148-JP), WELCIA HOLDINGS CO. LTD. (3141-JP) and PetMed Express Inc. (PETS). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
| Quarterly (USD million) | 2012-08-31 | 2012-05-31 | 2012-02-29 | 2011-11-30 | 2011-08-31 |
|---|---|---|---|---|---|
| Revenues | 6,230.9 | 6,468.3 | 7,146.8 | 6,312.6 | 6,271.1 |
| Revenue Growth % | (3.7) | (9.5) | 13.2 | 0.7 | (1.9) |
| Net Income | (38.8) | (28.1) | (161.3) | (52.0) | (92.3) |
| Net Income Growth % | N/A | N/A | N/A | N/A | N/A |
| Net Margin % | (0.6) | (0.4) | (2.3) | (0.8) | (1.5) |
| ROE % (Annualized) | N/A | N/A | N/A | N/A | N/A |
| ROA % (Annualized) | (2.2) | (1.6) | (8.6) | (2.8) | (4.9) |
Valuation Drivers
Rite Aid Corp. currently has a negative book value and its current Price/Assets ratio of 0.2 is lower than its peer median (0.5). RAD-US’s book value of equity is not positive and suggests that that it is not meaningful to analyze its ROE versus P/E in order to determine whether the company has an operating or growth advantage.
The company’s net profit margins have been relatively poor (currently -1.1% vs. peer median of 2.8%) while its asset efficiency is better than the median (asset turns of 3.6x compared to peer median of 2.4x). This suggests a volume driven operating model relative to its peers. RAD-US’s net margin is its highest relative to the last five years and compares to a low of -11.1% in 2009.
Economic Moat
The company’s top line performance is not as good as its peers (year-on-year change in revenue is 3.6%) but its earnings performance (33.6% change year-on-year) has been similar to the peer median. Unless the company maintains or improves this relative earnings growth, it is in danger of lagging its peers. RAD-US currently converts every 1% of change in revenue into 9.4% of change in annual reported earnings.
RAD-US’s return on assets is less than its peer median currently (-3.9% vs. peer median 6.0%). It has also had less than peer median returns on assets over the past five years (-11.8% vs. peer median 6.1%). This performance suggests that the company has persistent operating challenges relative to peers.
The company’s gross margin of 28.0% is around peer median suggesting that RAD-US’s operations do not benefit from any differentiating pricing advantage. In addition, RAD-US’s pre-tax margin is less than the peer median (-1.4% compared to 5.2%) suggesting relatively high operating costs.
Growth & Investment Strategy
RAD-US’s revenues have grown more slowly than the peer median over the last few years (-0.2% vs. 6.7% respectively for the past three years) and the stock price’s relatively low Price/EBITDA ratio of 1.7 implies relatively low future growth as well (Note: We use Price/EBITDA instead of PE due to negative earnings). Overall, we classify the company’s growth expectations as substandard relative to its peers.
RAD-US’s annualized rate of change in capital of -8.0% over the past three years is less than its peer median of 9.8%. This below median investment level has also generated a less than peer median return on capital of -11.0% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.
Earnings Quality
RAD-US reported relatively weak net income margins for the last twelve months (-1.1% vs. peer median of 2.8%). This weak margin performance and relatively conservative accrual policy (2.4% vs. peer median of 0.9%) suggest the company might likely be understating its net income, possibly to the extent that there might even be some sandbagging of the reported net income numbers.
RAD-US’s accruals over the last twelve months are around zero. However, this modestly positive level is also greater than the peer median which suggests some amount of building of reserves.
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