Drugstore chain retailer, Rite Aid Corporation’s (RAD) comparable-store sales (comps) for the month of October (4 weeks ended Oct 26, 2013) escalated 2.1% from the prior-year period, primarily driven by better comps results at its pharmacy stores. This was however, partially offset by weak front-end comps performance.
Pharmacy comps for October were up 3.4%, which included a negative impact of nearly 85 basis points from generic drug introduction. Further, the company witnessed a 1.1% rise in prescription count at comparable stores. However, the company’s front-end comps reflected a marginal decline of 0.6%.
The company’s front-end comps and comparable store prescription count were negatively impacted by the increase in pre-storm sales in the prior-year period, preceding Superstorm Sandy. Front-end comps were offset by 1.4%, while prescription count at comparable stores included an impact of 0.3%.
Rite Aid reported total drugstore sales of $1.961 billion for the month, up 2.2% from the year-ago figure of $1.918 billion. Prescription sales constituted 69.1% of total drugstore sales. Third-party prescription sales accounted for 97.0% of pharmacy sales.
Going forward, the company expects November sales results to be positively impacted by the cycling effect of Superstorm Sandy.
For the 34-week period ended Oct 26, Rite Aid’s comps dipped 0.1% from the prior-year period. The fall was primarily due to a 0.1% drop each in pharmacy and front-end comps, offset by a 0.2% rise in prescription count at comparable stores.
In the period, total drugstore sales slipped 0.3% to $16.410 billion from $16,463 billion in the comparable period of fiscal 2013. Prescription sales comprised 68.0% of total drugstore sales. Additionally, third-party prescription sales constituted 97.0% of pharmacy sales.
Rite Aid, which trails Walgreen Co. (WAG) and CVS Caremark Corp. (CVS) in terms of store count, has persistently witnessed a downward sales trend over several quarters due to the introduction of lower cost generic (non-brand) drugs. Such non-branded drugs are less expensive in the market but generate higher gross margins for the company.
This is evident from Rite Aid’s performance in the first two quarters of fiscal 2014, when generic medication primarily drove its margin expansion. Going forward, this Zacks Rank #1 (Strong Buy) stock is likely to focus on expanding its portfolio of generic medication, given the rising demand for such drugs.
However, Rite Aid’s generic drug sales could be dented by Wal-Mart Stores Inc.’s (WMT) entry into the retail generic drug market. Due to Wal-Mart’s wide array of manufacturers in India, Israel and the U.S., the mass merchant can offer the particular drugs at a more discounted price when compared to other drugstore chain retailers.