Shares of drugstore chain retailer, Rite Aid Corporation (RAD), rallied 8.53% as the company reported improved comparable-store sales (comps) for December (4 weeks ended Dec 28, 2013) on Jan 3, 2014. Comps for the month rose 2.9% from the prior-year period, primarily driven by higher comps at its front-end and pharmacy stores.
Pharmacy comps for December were up 4.1%, which included a negative impact of nearly 102 basis points from generic drug introduction. Front-end comps depicted an increase of 1.0%. However, the company witnessed a 2.0% decline in prescription count at comparable stores due to lower flu-related prescriptions and flu shots.
Rite Aid’s total drugstore sales for the month was $2.109 billion, up 2.7% from the year-ago figure of $2.054 billion. Prescription sales constituted 63.6% of total drugstore sales. Third-party prescription sales accounted for 97.2% of pharmacy sales.
For the 43-week period ended Dec 28, comps improved 0.5% year over year resulting from a 1.0% rise in front-end comps and a 0.7% increase in pharmacy comps. This was impacted slightly by flat prescription count at comparable stores.
Rite Aid reported total drugstore sales of $20.953 billion year-to-date, a marginal 0.2% increase from the year-ago figure of $20.913 billion. Prescription sales constituted 67.5% of total drugstore sales. Third-party prescription sales accounted for 97.1% of pharmacy sales.
Rite Aid’s comps bring in positive sentiment following the disappointing third-quarter fiscal 2014 results and an unfavorable outlook that released last month. The company’s streak of posting improved results for six consecutive quarters was broken by the dismal results in the last reported quarter. Rite Aid’s third-quarter earnings of 4 cents per share were significantly lower than 7 cents earned in the year-ago comparable quarter. The fall was primarily due to lower margins and higher number of outstanding shares.
Looking ahead, citing a possible rise in pharmaceutical costs, lower benefit from new generic drugs (as most of these drugs are included within the company’s portfolio) and persistent reimbursement rate pressure, Rite Aid lowered its current fiscal earnings outlook, thus adding to the company’s woes.
However, the company’s sustained focus on expanding pharmacy and clinical services through its Wellness+ customer loyalty program and remodeling of wellness stores raise our hopes. We believe that such measures will enable the company to broaden its customer base and boost top and bottom-line performance.
Other Stocks to Consider
Rite Aid Currently has a Zacks Rank #3 (Hold). A better-ranked stock in the drug store industry is Herbalife Ltd. (HLF), which has a Zacks Rank #2 (Buy). Other stocks performing well in the retail sector include The Men's Wearhouse Inc. (MW) and Finish Line Inc. (FINL). Both these stocks carry a Zacks Rank #2 (Buy).