Can Rite Aid's (RAD) Reverse Stock Split Plan Aid Stock?

Responding to the letter from the New York Stock Exchange (“NYSE”) regarding share price rules and its non-compliance for listing, Rite Aid Corporation’s (NYSE:RAD) board proposed a reverse split of its common stock. This will help the company regain full compliance with NYSE’s listing rules. However, the reverse stock split still awaits shareholder approval.

The company will hold a Special Meeting of Stockholders on March 21, 2019, where shareholders will vote for the approval and adoption of the reverse stock split. The record date for stockholders’ eligibility to vote for the split is set on Feb 5.

The stock split, if approved, will allow the board to select from proposed reverse stock split ratios of 1-for-10, 1-for-15 or 1-for-20. As a result, depending on the chosen ratio, either 10, 15 or 20 of the company’s outstanding or issued common shares will be converted into one share. Consequently, there will be a price increase of each common stock. This will mean that shareholders will have fewer shares but those will be priced higher. However, the stock split will not alter stockholders’ voting and other rights. It also will not impact the company’s operations or debt position.

Despite shareholders’ approval, the company’s board retains the right to abandon the reverse stock split at any time, in case the split is found to no longer benefit the company or its shareholders.

Rite Aid has been witnessing ups and downs in the recent past, given two failed mergers with Walgreens (NASDAQ:WBA) and Albertsons, and other operational issues. The company’s lower stock led to non-compliance of listing rules of NYSE. Rite Aid may regain compliance under the NYSE listing rules, if its share price is at least $1.00 and it maintains average closing price of at least $1.00 in the past 30 trading days during the six-month cure period or on Jul 3, 2019 — the end of the six-month cure period. Until then, the company’s shares will be listed and continue to trade on the NYSE.

Notably, Rite Aid’s shares have lost 57.3% in the past year, significantly wider than the industry’s decline of 16.5%.

Despite margin woes and a soft outlook, Rite Aid is bracing up for growth by leveraging retail pharmacies, EnvisionRxOptions PBM, and health and wellness offerings. Rite Aid expects to maintain the earnings momentum by enhancing clinical services in the pharmacy business, boosting customer experience, and investing in retail and pharmacy services businesses. However, it remains to be seen how this Zacks Rank #3 (Hold) company’s strategies play out.

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Abercrombie & Fitch has a long-term earnings growth rate of 15.3%. Further, the stock has surged 8.5% in the past three months.

DSW has rallied 28.4% in a year and has a long-term earnings growth rate of 9%.

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