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CAMP HILL, Pa. — This month Rite Aid Corp. is celebrating its 50th anniversary with special promotions, but the celebration was given additional meaning last month as the company reported its first quarterly profit in more than five years.
This month Rite Aid Corp. is celebrating its 50th anniversary with special promotions, but the celebration was given additional meaning last month as the company reported its first quarterly profit in more than five years.
Although Wall Street was expecting more red ink for the third quarter of fiscal 2013, Rite Aid surprised analysts with net income of $61.9 million, or 7 cents per share. Analysts on average were expecting a loss of 3 cents per share, according to Thomson Reuters.
The surprising bottom-line performance came despite a 1.2% decrease in revenues to $6.24 billion and a 1.5% drop in same-store sales. The sales decline stemmed in part from having fewer stores in operation and also from a significantly greater share of generic drugs in the pharmacy sales mix.
Same-store pharmacy sales fell 2.7%, reflecting a negative impact of 924 basis points from generic introductions. The number of prescriptions dispensed increased 3.6%, however, driven in part by pharmacy business gained through the Walgreen Co. and Express Scripts Inc. (ESI) dispute, which ended last summer.
"We reached a significant milestone in our turnaround efforts by earning net income of $61.9 million, or 7 cents per share, compared to a net loss of $52 million, or 6 cents per share, in the previous year’s third quarter," said chairman, president and chief executive officer John Standley during a conference call with analysts. "This improvement was driven by increases in front-end sales and prescription counts, as well as an improvement in pharmacy gross margin. We have now increased both adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and same-store prescription counts for eight consecutive quarters."
Standley added that the retailer has reduced its year-to-date net loss to $5 million.
He acknowledged that a decisive factor in Rite Aid’s script count growth has been its ability to retain the vast majority of pharmacy patients who transferred their prescriptions to Rite Aid due to the Walgreens-ESI dispute.
"One factor has been our commitment to providing outstanding customer service to these patients, and our teams on the ground have done a tremendous job of bringing this to life," noted Standley. "At the same time, we have focused on enrolling these patients in our award-winning wellness+ customer loyalty program. We’ve also been successful in sending targeted special offers to these patients and communicating the value of remaining a loyal Rite Aid customer."
According to senior executive vice president and chief operating officer Ken Martindale, Rite Aid counted about 25 million active wellness+ members (defined as those who had used their card at least twice in the preceding 26 weeks), even with the second quarter and up 5% year over year.
Wellness+ members accounted for 76% of Rite Aid’s front-end sales in the quarter and 67% of prescriptions, up from 72% and 66%, respectively, in the fiscal 2012 quarter.
Martindale added that Rite Aid is on track to have nearly 800 stores converted to its new wellness format by the end of the fiscal year.
