Rite Aid Corporation RAD is slated to report third-quarter fiscal 2018 results on Jan 3. The big question facing investors is whether this drug store retailer will be able to deliver a positive earnings surprise in the quarter to be reported.

Last quarter, the company reported loss per share of 1 cent, which was in line with estimates. Further, the company has underperformed the Zacks Consensus Estimate by an average of 20.8% in the trailing four quarters. Let’s see how things are shaping up prior to this announcement.

Rite Aid Corporation Price and EPS Surprise

Rite Aid Corporation Price and EPS Surprise | Rite Aid Corporation Quote

What to Expect?

The Zacks Consensus Estimate for the quarter under review is a loss of 2 cents per share, against earnings of 2 cents per share reported in the year-ago quarter. We note that the Zacks Consensus Estimate has been stable ahead of the earnings release. Further, analysts polled by Zacks expect revenues of $7.74 billion, down 4.4% from the prior-year quarter.

Following the recent sale of 250 stores to Walgreens Boots Alliance Inc. WBA, Rite Aid’s shares have shown some momentum. The company’s shares dipped 2.4% in the last three months, narrower than the industry’s decline of 7.1%.

Factors at Play

After the aforementioned sale of stores to Walgreens, Rite Aid is poised to improve financial leverage and balance sheet using the funds from the transaction. To strengthen operations, Rite Aid remains focused on remodeling wellness stores. These newly renovated wellness stores tempt customers to spend more time on selecting their personal care products, consequently enabling the company to generate increased sales.

In another move to enhance customer experience, Rite Aid started accepting payments via digital wallets like Apple Pay, Google Wallet, as well as other tap and pay credit and debit cards. Recently, the company resorted to accepting Apple Pay online, as customers are using smartphones to make transactions. In fact, management stated that over half of its website visitors access www.riteaid.com from their mobiles, the most being iPhone users. This development is likely to provide customers with a more convenient and better shopping experience that in turn will attract more traffic.

Additionally, the company has been undertaking a number of strategies to drive growth such as the expansion of its pharmacy and clinical services, along with the reduction of costs.  Rite Aid has utilized additional resources, such as the introduction of HealthSpot telehealth booths at its Ohio pharmacies, addition of RediClinics to its stores, its Wellness+ with Plenti program, as well as the Flu Immunization program to stimulate customer demand amid the soft macroeconomic scenario. The company also acquired EnvisionRx, which will enable it to offer cost-friendly health plans and solutions for employers, drive growth and bolster shareholder value.

On the cost front, the company is focusing on generating cost savings through centralized indirect procurement of drugs and reduction in supply chain costs. We believe that these programs and initiatives will enable the company to increase customer base and facilitate the generation of long-term profitability as well.

However, the company remains prone to competition from rivals. Rite Aid’s generic drug sales have been adversely affected by Wal-Mart’s strategy of entering the retail generic drug market. Due to Wal-Mart’s wide array of manufacturers in India, Israel, and the United States, the mass merchant offers generic drugs at a discounted price compared with its rival companies. Further, speculations about Amazon.com Inc.’s AMZN entry in the drugstore business remain a threat.

Nonetheless, let’s see if Rite Aid’s growth drivers can help counter the challenges this time around.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Rite Aid is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Rite Aid has an Earnings ESP of 0.00%, with both the Zacks Consensus Estimate and Most Accurate Estimate pegged at a loss of 2 cents per share. While the company’s Zacks Rank #3 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Walgreens Boots Alliance Inc. currently has an Earnings ESP of +3.97% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fastenal Company FAST currently has an Earnings ESP of +0.55% and a Zacks Rank #2.

McDonald's Corporation MCD has an Earnings ESP of +0.32% and a Zacks Rank #3.

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