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Stock Analyst Update

Rite Aid Improvement May Be Too Little, Too Late

Despite encouraging results, investors should hold off for now.

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What Happened?
Rite Aid (RAD) on Tuesday announced earnings for the quarter ended August 26, reporting a loss of $1.87 per share. Most of the loss was due to multiple noncash charges resulting from its debt restructuring in July, a write-down taken for its investment in Drugstore.com, and costs associated with restating its historical financial statements. Same-store sales, or sales at stores open more than a year, rose 9.9% compared with the same period last year. EBITDA (earnings before interest, taxes, depreciation, amortization, and nonrecurring expenses) rose 24.4%.

What It Means for Investors
Despite Rite Aid's positive developments during the second quarter, we think potential investors should wait to see consistent improvement before buying the stock. Faced with the challenge of repaying roughly $6 billion in debt, Rite Aid has made great headway in reducing expenses and improving operating efficiencies, leading to sales growth and increases in cash flows. The new management team has developed a number of training and software programs to continue to improve these results.

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Steve Hahn does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.