Rite Aid's Comps Improved

Zacks

Drugstore chain retailer Rite Aid Corporation’s (RAD) same-store sales (comps) reported an increase of 0.5% for the four-week period ended July 28, 2012. The improvement was driven by positive front-end, pharmacy and prescription count comps for the month.

Front-end same-store sales for July 2012 marginally increased 1.2%, while pharmacy comps inched up 0.2%. Prescription count at comparable stores witnessed an upside of 4.5%. Pharmacy comps for July included a negative impact of around 742 basis points from new generic introductions.

Rite Aid reported total drugstore sales of $1.881 billion in the month under review, with prescription sales accounting for 67.5% of drugstore sales and third-party prescription sales making up for 96.4% of pharmacy sales. The company’s July sales represented a 0.1% dip from the year-ago level of $1.883 billion.

For the 21-week period ended July 28, 2012, Rite Aid registered a comps increase of 1.5%. Comps for the period comprised a 2% rise in front-end comps and a 1.2% hike in pharmacy comps. Prescription count at comparable stores grew 3.2% during the period.

Total drugstore sales of $10.247 billion for the 21-week period reflected a 0.8% increase from $10.167 billion reported in the year-ago period. Sales for the 21-week period included a 68.1% contribution from prescription sales with third-party prescription sales making up for 96.6% of pharmacy sales.

Our Recommendation

In an effort to expand its pharmacy and clinical services, Rite Aid has applied additional resources, such as the Wellness+ program for diabetes and Flu Immunization. We believe such programs will enable the company to increase its customer base as well as long-term profitability.

Moreover, the company is taking various cost-cutting initiatives, such as centralized indirect procurement of drugs, managing administrative headcounts, reducing supply chain costs, reducing debt, etc., which should help improve the bottom line.

Headquartered in Camp Hill, Pennsylvania, Rite Aid is the third-largest retail drugstore in the U.S. on the basis of revenues and number of stores. The company operates in 31 states across the country and in the District of Columbia. As of July 28, 2012, the company operated 4,646 stores as compared with 4,702 stores in the same period last year.

Rite Aid competes with CVS Caremark Corporation (CVS) and Walgreen Co. (WAG). Currently, the company has a Zacks #3 Rank, implying a short-term Hold rating. Moreover, we are maintaining a long-term Neutral recommendation on the stock.

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