Why Rite Aid’s Stock Exploded Today

What happened

Actions of Rite Help (NYSE: RAD) jumped on Tuesday after the drugstore chain announced a plan to increase profits by resizing its store base. As of 1:30 p.m. ET, Rite Aid’s stock price has risen more than 17%.

So what

Rite Aid’s revenues from continuing operations increased 1.8% to $ 6.2 billion in the third quarter of fiscal 2022. Gains were fueled by a 7.9% jump in drugstore sales retail, at $ 4.4 billion, which was partially offset by a 10.8% drop in the company’s pharmacy services revenue, to $ 1.9 billion.

“Despite the challenges of the job market, our pharmacists and store teams have been able to respond to unprecedented volumes of COVID and influenza vaccinations, COVID testing and other clinical services,” CEO Heyward Donigan said in a statement.

Image source: Getty Images.

These revenue gains also contributed to a 12.7% increase in Rite Aid’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations, to $ 154.8 million.

Now what

To further improve profitability, Rite Aid announced a plan to close underperforming stores. The company said it will close 63 initial locations as it conducts “a rigorous assessment of its store base.” Management expects these closures to increase the drugstore chain’s annual EBITDA by approximately $ 25 million.

Additionally, Rite Aid has lifted its FY2022 Adjusted EBITDA forecast, in part due to growing demand for COVID-19 tests and vaccines. The company now expects to generate Adjusted EBITDA of $ 500-520 million, down from an earlier projection of $ 460-500 million.

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Joe Tenebruso has no position in the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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