U.S. drugstore chain Rite Aid(RAD) - Get Report will report fiscal fourth-quarter earnings before the open Thursday. The only reason to be excited about this drugstore chain is the prospect of it being bought by larger rival Walgreens Boots Alliance(WBA) - Get Report .
For the quarter that ended February, Rite Aid is expected to earn 6 cents per share, down from 12 cents a year ago, on a 22.6% rise in revenue of $8.40 billion. For the year, earnings are projected to decline 62% year over year to 16 cents per share, while revenue of $30.87 billion would mark a year-over-year increase of 16.30%.
Rite Aid profits have been hard to come by. The company generates about 70% of its total drugstore revenue from prescription drugs. Because of generic competition, Rite Aid's sales weakened and profits have taken a significant hit.
In its fiscal third-quarter report released in December, gross margins decreased 410 basis points to 24.6% and its adjusted Ebitda margin rate dropped 39 basis points to 4.54%. Selling, general and administrative expenses rose 350 basis points to 21.8%. Rite Aid's same-store sales declined 0.8% in February, which followed a 1.4% decline in January.
According to TheStreet's Jim Cramer, investors need clarity on how the merger is coming. His concern, as co-manager of the Action Alerts PLUS portfolio, is that uncertainty over whether the deal takes place might start to weigh on shares of Walgreens, which is an AAP holding. Cramer and Research Director Jack Mohr recently wrote that when they monitor Walgreens' conference call Tuesday, they will be listening for information on "the integration process, synergy expectations and timing for close (which is still expected in the back half of the year)."
While Rite Aid has struggled, Walgreens had an almost 6% rise in same-store sales in January and its adjusted operating margin rate grew 20 basis points of 5.9%, showing the two companies' money-making prospects differ widely.
So the merger is the only reason to be bullish about Rite Aid stock, currently at $8 and up 4.5% for the year to date. The stock is projected to rise 10% in the next 12 months, based its consensus buy rating and average analyst 12-month price target of $9.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.