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Friday, December 20, 2019

Rite Aid says ice cream contributed to third-quarter beat, shares skyrocket - MarketWatch

By Tonya Garcia

Published: Dec 20, 2019 12:05 pm ET

Rite Aid stock is up 93% for the week

Rite Aid bought Thrifty Ice Cream in 1996

Rite Aid bought Thrifty Ice Cream in 1996

It wasn’t just cough and cold season that drove Rite Aid Corp.’s better-than-expected fiscal third-quarter earnings beat.

The pharmacy retailer said ice cream gave the results a boost.

“It’s worth noting that Thrifty Ice Cream, which we recently expanded to 900 additional stores, was a meaningful contributor to our third-quarter growth,” said James Peters, Rite Aid’s chief operating officer, on the earnings call, according to a FactSet transcript.

Thrifty Ice Cream is a nearly 80-year-old California brand that Rite Aid acquired in 1996. Earlier this year, Rite Aid RAD+26.18%   announced that it was expanding the brand to the Pacific Northwest with a test in select stores in Delaware, Maryland, New Jersey, New York and Pennsylvania. Thrifty is mostly sold by the container, but there are California locations where it’s sold by the scoop.

Read: Olive Garden’s ‘Lasagna Mia’ misstep drives down same-store sales growth

Rite Aid reported adjusted earnings per share of 54 cents, blowing past the FactSet consensus for 7 cents per share. Revenue of $5.46 billion beat the FactSet outlook for $5.42 billion.

Rite Aid stock ended Thursday up 42.3%, the biggest one-day percentage gain since Oct. 27, 2015. Shares are up 24% on Friday, putting the stock on track for an 94% gain for the week.

To be sure, there were other factors that executives highlighted on the call. The company is focused on pharmacy services, with 2.3 million flu shots administered by the end of the quarter, more than all of 2018.

There was a “strong start” to cold season, which Peters said contributed to the 1% same-store sales growth during the quarter.

And the company partnered with Amazon.com Inc. AMZN+0.3%   for Amazon Counter and Locker access, with Amazon pickup coming to all Rite Aid stores. Peters said it’s too soon to determine the impact that Amazon Lockers are having on the business, but the company is optimistic.

See: IHOP’s fast-casual Flip’d breakfast chain should satisfy investors, analysts say

“What we can tell you is that it’s certainly driving additional people into our stores,” he said.

Kohl’s Corp. KSS+1.23%   accepts Amazon returns and has said that the traffic has yielded traffic benefits for the store as well.

Rite Aid says it will have more to say about its long-term strategy at its analyst day event on March 16.

Though all of this sounds good, CFRA’s Arun Sundaram is cautious.

“[W]ith the stock climbing almost 45% [on Thursday], we are reluctant to recommend purchase at these levels, particularly because there is significant execution risk in turning around a business with a fresh management team,” he wrote.

Don’t miss: Conagra stock soars as ‘on-trend’ plant-based meats and carbs help fuel earnings beat

CFRA rates Rite Aid stock hold with a $12 price target, up $4.

Rite Aid shares are down 6.4% for the last year while the S&P 500 index SPX+0.53%   has gained 30.6%.

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Rite Aid says ice cream contributed to third-quarter beat, shares skyrocket - MarketWatch
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