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Rite Aid's July Comps Improve

Zacks Equity Research

Drugstore chain retailer, Rite Aid Corporation (RAD) reported marginal growth in comparable-store sales for Jul 2013. The company’s comps for the 4-week period ended Jul 27, 2013 inched up 1.3% over the prior-year period, primarily driven by improved comps results at its pharmacy and front-end stores.

Pharmacy comps for July were up 1.6%, which included a negative impact of nearly 307 basis points from generic drug introductions. The results were also aided by a 0.4% rise in prescription counts. Additionally, the company’s front-end comps rose 0.7%.

Rite Aid reported total drugstore sales of $1.898 billion for the month, up 0.9% from the year-ago figure of $1.881 billion. Prescription sales constituted 67.7% of total drugstore sales. Third-party prescription sales accounted for 97.0% of pharmacy sales.

For the 21-week period ended Jul 27, Rite Aid’s comps decreased 1.2% from the prior-year period. The fall was primarily due to a 1.9% drop in pharmacy comps, partially offset by 0.4% rise in front-end comps. Prescription count at comparable stores remained flat year over year

In the period, total drugstore sales fell 1.5% to $10.089 billion from $10.247 billion in the comparable period of 2012. Prescription sales comprised 67.5% 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 the average $10.00 generic drug co-pay.

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