Rite Aid Corporation RAD recently posted its second consecutive month of negative comparable-store sales (comps) data, as the same declined again in Jan 2016. However, the company has been delivering comps growth in each quarter since first-quarter fiscal 2015.
The Zacks Rank #3 (Hold) company’s comps for the four weeks ended Jan 23, 2016, dipped 1.4% year over year, reflecting a decline in pharmacy and front-end comps, coupled with a fall in prescription count at comparable stores.
Front-end comps declined 1.9%, while Pharmacy comps were down 1.2%, including a negative impact of nearly 424 basis points from generic drug introduction. Further, prescription count at comparable stores dropped 1% year over year.
Rite Aid’s total drugstore sales for the month fell 1.3% year over year to $2 billion. Prescription sales constituted 70.5% of total drugstore sales and third-party prescription sales accounted for 97.7% of pharmacy sales.
For the year-to-date period (47 weeks ended Jan 23, 2016), Rite Aid reported comps increase of 1.5%, wherein Pharmacy comps rose 2% and front-end comps were up 0.3%. Prescription count at comparable stores improved 0.4%.
Total drugstore sales for the 47-week period increased 1.4% to $24.119 billion from $23.791 billion in the comparable year-ago period. Prescription sales constituted 69.1% of total drugstore sales. Third-party prescription sales accounted for 97.8% of pharmacy sales.
We note that Rite Aid, the nation’s third-largest drug store chain (in terms of store size), operated 4,558 stores in the U.S., as of Jan 23, 2016.
Recent Development
Rite Aid and leading drug store retailer Walgreens Boots Alliance Inc. WBA have agreed to merge. The deal, which is expected to close in the second half of calendar year 2016, is likely to create a drugstore behemoth with a superior network that will cater to a vast array of health and wellness solutions in-store as well as online. Further, this will intensify Walgreens’ competitive strength vis-à-vis CVS Health Corp. CVS, the second-largest drugstore chain by store size and the largest in terms of revenues.
The combined company to be formed from the Walgreens-Rite Aid merger will operate over 12,000 stores in the U.S. and fill over 1 billion prescription drugs every day. This compares favorably with CVS Health, which currently operates about 8,300 stores in the U.S. In an attempt to expand its foothold in the retail pharmacy space and outperform its competitor, Walgreens Boots, CVS Health recently acquired Omnicare for $12.9 billion and took over Target Corporation’s TGT pharmacy business (in Jun 2015) for $1.9 billion.
The latest Walgreens-Rite Aid merger deal is definitely the talk of the town. However, we would like to see how this drugstore behemoth, once formed, benefits the industry, consumers and shareholders alike.
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