This pharmacy chain’s experience could be a big advantage as more U.S. states legalize cannabis. Meanwhile, though, its revenue growth has been sluggish, it’s losing money right now, and it has a massive debt load.
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RITE AID CORP., $8.98, symbol RAD on New York (Shares outstanding: 53.9 million; Market cap: $484.0 million; www.riteaid.com), operates 2,469 drugstores stores in 18 U.S. states. It also operates walk-in health clinics, and provides processing services to operators of drug benefit plans.
Rite Aid recently announced that it would sell skin creams, lotions and lip balms containing CBD, short for cannabidiol, through its 200 stores in Oregon and Washington State.
CBD is a non-psychoactive compound extracted from both marijuana and other cannabis varieties. In 2018, the U.S. Congress passed a new farm bill that makes it legal for hemp growers to extract CBD. However, the Food and Drug Administration (FDA) has so far banned companies from adding CBD to food or selling it as a dietary supplement.
Rite Aid is in a strong position to profit as more U.S. states legalize cannabis. That’s because its pharmacy operations have experience distributing controlled substances and counselling customers about their effects.
Meanwhile, Rite Aid’s sales in its fiscal 2019 fourth quarter, ended March 2, 2019, fell 0.3%, to $5.38 billion from $5.39 billion a year earlier. Revenue from its retail stores (74% of total revenue) were flat, but same-store sales improved 0.7%. Revenue from its pharmacy services division (26%) increased 1.2% due to higher revenue from government-funded Medicare drug plans.
If you exclude unusual items, the company lost $13.3 million, or $0.25 a share, in the latest quarter. That’s much worse than the year-earlier loss of $7.8 million, or $0.15 a share. (Note—all per share amounts adjusted for a 1-for-20 reverse stock split on April 22, 2019.)
The higher losses are partly due to new investments in its stores and distribution networks.
As part of that plan, the company has a new deal with Amazon.com to install Amazon Lockers inside more than 900 of its stores in the next year. Rite Aid feels this will help improve customer traffic and sales as Amazon shoppers come to its stores to pick-up or return their Amazon packages.
As of March 2, 2019, Rite Aid held cash of $144.4 million, and its long-term debt was $3.45 billion. That’s a very high 7.1 times its market cap. However, as the result of recent refinancing, it does not have to begin repaying those loans until 2023.
The company could earn $0.30 a share in the current fiscal year, and the stock trades at a high 29.9 times that forecast. It does not pay a dividend.
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