Rite Aid's August Comps Improve

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Drugstore chain retailer, Rite Aid Corporation (RAD) reported marginal growth in comparable-store sales (comps) for Aug 2013. The company’s comps for the 5-week period ended Aug 31, 2013 inched up 1.1% 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 August were up 2.5%, which included a negative impact of nearly 161 basis points from generic drug introduction. A 0.2% drop in prescription counts also adversely affected the results. Further, the company’s front-end comps declined 1.7%.

Rite Aid reported total drugstore sales of $2.425 billion for the month, up 1.1% from the year-ago figure of $2.399 billion. Prescription sales constituted 68.4% of total drugstore sales. Third-party prescription sales accounted for 97.1% of pharmacy sales.

Rite Aid’s comps for second-quarter fiscal 2014 inched up 1.0% from the comparable year-ago quarter with pharmacy comps increasing 1.7% and front-end comps declining 0.3%. Prescription count at comparable stores remained flat year over year.

Total drugstore sales nudged up 0.7% to $6.250 billion in the quarter compared with $6.205 billion in the second quarter of fiscal 2013. Prescription sales accounted for 67.9% of total drugstore sales. Additionally, third-party prescription sales constituted 97.0% of pharmacy sales.

For the 26-week period ended Aug 31, Rite Aid’s comps dipped 0.8% from the prior-year period. The fall was primarily due to a 1.1% drop in pharmacy comps, while front-end comps remained flat year over year. Prescription count at comparable stores fell 0.1%.

In the period, total drugstore sales fell 1.0% to $12.514 billion from $12.646 billion in the comparable period of fiscal 2013. Prescription sales comprised 67.7% 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 first-quarter fiscal 2014, when generic medication primarily drove its margin expansion. Going forward, this Zacks Rank #3 (Hold) stock is likely to focus on expanding its portfolio of generic medication, given the growing 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.

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