Rite Aid Comps Again Decline - Analyst Blog

Rite Aid Corp. (RAD), one of the nation’s leading drugstore chains, reported lackluster same-store sales (comps) results down 1.0% in August 2010 from July. Rite Aid’s same-store sales continue to move in the wrong direction, with August 2010 marking the 15th consecutive month of negative comps. Rite Aid had last witnessed positive same-store sales of 0.6% more than a year ago, in May 2009.

Monthly Performance in Detail

Rite Aid’s August overall comps dropped 1.0%, after falling 1.1% in July 2010 and 2.5% in June 2010. Pharmacy comps declined 1.0%, hurt by the introduction of new generic drugs to the tune of 225 basis points. Prescriptions filled at comparable stores decreased 1.2% from August 2009.

Front-end same-stores sales fell 0.9%. Other than prescription drugs, Rite Aid sells a wide assortment of other merchandise, which it terms as "front end" products, including over-the-counter medications, health and beauty aids, personal care items, cosmetics, etc.

Rite Aid’s sales also dropped 2.2% to $2.343 billion in August 2010. Prescription drugs contributed 68.5% to the total revenue. Rite Aid’s 96.2% of pharmacy sales were from customers covered by third party payors (insurance companies, prescription benefit management companies, etc.).

Performance for the 13-Week Quarter Ended August 28, 2010

Rite Aid’s overall same-store sales for the period decreased 1.5%. Front-end same-store sales dropped 0.9% and pharmacy same-store sales plunged 1.8%. Prescriptions filled at comparable stores decreased 2.1%.

Total drugstore sales fell 2.5% to $6.137 billion, with prescription revenues accounting for 68.1% of total drugstore sales. Third-party prescription revenues represented 96.1% of pharmacy sales.

As of August 28, 2010, Rite Aid operated 4,747 stores as compared with 4,812 stores a year ago.

Outlook

Rite Aid continues to expect total sales in the range of $25.2 billion to $26.6 billion for fiscal 2011, ending February 2011. Same-stores sales are expected in the range of negative 1.0% to positive 1.0% for fiscal 2011. Net loss is projected between $355 – $570 million or a loss per share of 65 – 41 cents.

The Zacks Consensus Estimate for the fiscal year currently stands at a loss per share of 48 cents. For the current quarter, the Zacks Consensus Estimate is a loss of 16 cents per share.

Rite Aid expects its various sales initiatives such as a new wellness and customer loyalty program, coupled with immunization training to aid a number of Rite Aid pharmacists providing vaccinations, to help drive the sales in the long term.

Based on weakening comps trend, we have a Zacks #3 Rank (short-term Hold recommendation) on the stock. We also reiterate our long-term Neutral rating.