Through TheFLY's Eyes: Rite Aid
Dead Money Until The Second Half Of 2006
Rite Aid's (RAD) stock has been trading all over the place this morning as the company showed good sales growth but lower margins. Management cited the weakness in margins is due to the investment in new stores and the transition to Medicare Part D. It is apparent that margins will be weak again in the company's 2nd fiscal quarter.
To spur growth and earnings, Rite Aid management has begun a growth strategy to relocate underperforming stores and open new stores in better growth areas. These moves have increased expenses. In addition, as the company makes a transition to Medicare Part D, there is a ramp that has led to lower margins which should be offset by higher volumes. This also appears to be a 3rd quarter event.
Rite Aid will most likely be a "show me" stock until it reports improved margins in the second half of the year. Revenue growth without improved margins means no appreciation in stock price.