Rite Aid's Sep Comps Rise

Zacks

Drugstore chain retailer, Rite Aid Corporation’s (RAD) comparable-store sales (comps) for the month of September (4 weeks ended Sep 28, 2013) escalated 1.9% 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 September were up 3.1%, which included a negative impact of nearly 100 basis points from generic drug introduction. Further, the company witnessed a 0.9% rise in prescription count at comparable stores. However, the company’s front-end comps reflected a marginal decline of 0.5%.

Rite Aid reported total drugstore sales of $1.935 billion for the month, up 1.9% from the year-ago figure of $1.899 billion. Prescription sales constituted 68.7% of total drugstore sales. Third-party prescription sales accounted for 97.1% of pharmacy sales.

For the 30-week period ended Sep 28, Rite Aid’s comps dipped 0.4% from the prior-year period. The fall was primarily due to a 0.6% drop in pharmacy comps, while front-end comps remained flat year over year. Prescription count at comparable stores rose 0.1%.

In the period, total drugstore sales slipped 0.7% to $14.449 billion from $14.545 billion in the comparable period of fiscal 2013. Prescription sales comprised 67.8% 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.

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