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02 October 2014 Americas/United States Equity Research Drug Retail
Rite Aid Corporation (RAD) Rating OUTPERFORM* [V] Price (01 Oct 14, US$) 4.81 Target price (US$) 7.00¹ 52-week price range 8.50 - 4.81 Market cap. (US$ m) 4,713.30 Enterprise value (US$ m) 10,117.83 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months. [V] = Stock considered volatile (see Disclosure Appendix).
Research Analysts Edward J. Kelly, CFA, CPA 212 325 3241
[email protected] Judah C. Frommer, CFA 212 325 8681
[email protected] Lauren Wood 212 325 4734
[email protected]
MONTHLY
Finally Some Positive News; September Sales Beat on Across the Board Strength ■ CS View: Rite Aid finally provided investors with some positive news, as the company soundly beat September sales expectations with strength in both the pharmacy and the front-end. Total comp growth of 5.1% exceeded our estimate and consensus of 3.2%. The pharmacy comp was particularly impressive, as sales rose 6.3% vs. consensus of +4.5%. Script growth of 4.4% was the strongest the company has experienced since the 2012/2013 active flu season. The front-end comp of 2.3% versus consensus of 0.9% was also encouraging given competitive challenges and weak staples retail performance generally. We are clearly encouraged by September results, but remain cognizant of the fact that margins (not sales) have been the company’s problem. That being said, we expect better performance as the company progresses through fiscal 2015 and see the recent pull-back as an attractive buying opportunity. ■ Key Takeaways: (+) Total SSS of 5.1% came in ahead of consensus and our estimate of +3.2%. (+) Rx comp sales growth of +6.3% exceeded our estimate of 4.7% and consensus of 4.5%. Generics impact of 225bps bps was in line with our expectation. (+) Comparable script count growth was a solid +4.4%, representing a sequential acceleration of 260bps on a two-year stack basis. (+) Front-end comp growth of +2.3% also beat our expectation of +0.5% and consensus of +0.9%.
Share price performance 9 8 7 6 5 4 Oct-13
Daily Oct 02, 2013 - Oct 01, 2014, 10/02/13 = US$5.01
Jan-14 Price
Apr-14 Jul-14 Indexed S&P 500 INDEX
On 10/01/14 the S&P 500 INDEX closed at 1946.16
Quarterly EPS 2014A 2015E 2016E
Q1 0.10 0.05 0.07
Q2 0.08 0.13 0.15
Q3 0.06 0.05 0.07
Q4 0.07 0.11 0.11
Financial and valuation metrics Year EPS (CS adj.) (US$) Prev. EPS (US$) P/E (x) P/E rel. (%) Revenue (US$ m) EBITDA (US$ m) OCFPS (US$) P/OCF (x) EV/EBITDA (current) Net debt (US$ m) ROIC (%) Number of shares (m) BV/share (Next Qtr., US$) Net debt (Next Qtr., US$ m) Net debt/tot eq (Next Qtr., %)
03/14A 0.29 — 16.3 88.6 25,526.4 1,191.7 0.72 9.2 8.6 5,611 20.17 979.90 -2.0 5,566.5 -292.0
03/15E 03/16E 0.34 0.41 — — 14.3 11.7 84.0 76.6 26,284.0 26,747.5 1,198.9 1,333.3 0.80 0.81 6.0 5.9 8.6 7.7 5,405 5,027 18.84 20.53 IC (current, US$ m) EV/IC (x) Dividend (current, US$) Dividend yield (%)
03/17E 0.53 — 9.0 65.9 27,273.0 1,443.9 0.94 5.1 7.1 4,510 23.28 3,497.04 2.8 — —
Source: Company data, Credit Suisse estimates.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do
business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS
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02 October 2014
Rite Aid Comparable Store Sales Exhibit 1: RAD Front-End Comps 10% 8% 6%
2.3%
4%
2% 0%
-2% -4%
RAD F/E Comps
Sept
July
Aug
June
Apr
May
Mar
Jan
Feb
Dec
Oct
Nov
Sep
July
Aug
June
Apr
May
Mar
Jan
Feb
Dec
Oct
Nov
Sep
-6%
RAD 2 YR F/E Comps
Source: Company data, Credit Suisse estimates
Exhibit 2: RAD Pharmacy Comps 12% 10% 8%
6.3%
6% 4% 2% 0% -2% -4%
RAD Rx Comps
Aug
Sept
July
May
June
Apr
Mar
Feb
Jan
Dec
Nov
Oct
Sep
Aug
July
June
May
Apr
Mar
Feb
Jan
Dec
Nov
Oct
Sep
-6%
RAD 2 YR Rx Comps
Source: Company data, Credit Suisse estimates
Rite Aid Corporation (RAD)
2
02 October 2014
Comparable Script Growth Exhibit 3: RAD Comparable Store Script Growth 6.0% 4.4%
5.0% 4.0% 3.0%
2.0% 1.0% 0.0% -1.0%
-2.0% Sept
Aug
July
June
Apr
May
Mar
Jan
Feb
Dec
Oct
Nov
Sep
Aug
July
June
Apr
May
Mar
Feb
Jan
Dec
Nov
Oct
Sep
-3.0%
Comp Scripts Source: Company data, Credit Suisse estimates
Generic Impact Exhibit 4: Generic Impact on Pharmacy Comps RAD
7% 5.4%
5% 4% 3% 2% 1%
6.3%
6.0%
6%
3.4% 0.9%
3.9% 0.8%
5.2%
5.0%
1.4%
1.6%
5.2%
4.1%
1.0%
3.2% 1.2%
3.1% 1.4%
3.5% 1.3%
1.7%
2.0%
2.2%
Jul-14
Aug-14
2.3%
0% Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Comp. Rx Sales (Reported)
Apr-14
May-14
Jun-14
Sep-14
