Rite Aid Corporation (NYSE:RAD) is one of the leading retail drugstore chains in the United States. In the company’s stores, it sells prescription drugs and a range of other merchandise, which it calls front-end products. Front-end products include over-the-counter medications, health and beauty aids, personal care items, cosmetics, household items, beverages, convenience foods, greeting cards, seasonal merchandise and other everyday and convenience products as well as photo processing. With approximately 4,600 stores in 31 states and the District of Columbia, RAD has a strong presence on both the East and West Coasts. Rite Aid is the largest drugstore chain on the East Coast and the third-largest in the United States, employing roughly 89,000 associates.
RAD reported first-quarter net income of $41.4 million and net income per diluted share of $0.04, compared to prior year's first-quarter net income of $89.7 million and net income per diluted share of $0.09. Revenues for the quarter were $6.5 billion versus revenues of $6.3 billion in the prior year's first quarter. Revenues increased 2.7 percent primarily as a result of an increase in pharmacy same store sales.
- Warning! GuruFocus has detected 2 Warning Signs with RAD. Click here to check it out.
- RAD 15-Year Financial Data
- The intrinsic value of RAD
- Peter Lynch Chart of RAD
Same-store sales for the quarter increased 3.1 percent over the prior year. Front-end same-store sales were flat compared to the prior-year period while pharmacy same-store sales increased 4.6 percent. Pharmacy sales included an approximate 143 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores increased 2.3 percent over the prior year period. Prescription sales accounted for 68.4 percent of total drugstore sales, and third-party prescription revenue was 97.4 percent of pharmacy sales.
In the first quarter, the company relocated 3 stores, remodeled 105 stores and expanded 1 store, bringing the total number of wellness stores chainwide to 1,325. The company also acquired 1 store and closed 7 stores, resulting in a total store count of 4,581 at the end of the first quarter. (Source: Company’s Site).
It has partnered with McKesson (NYSE:MCK) for better distribution of generic pharmaceuticals. This partnership will result in lower capital requirements for RAD. It may cut costs by $150 million in 2015.
What to Expect
RAD has confirmed that sales are expected to be between $26.0 billion and $26.5 billion and same store sales to range from an increase of 2.50 percent to 4.50 percent over fiscal 2014. Adjusted EBITDA (which is reconciled to net income on the attached table) guidance is expected to be between $1.275 billion and $1.350 billion, and net income is expected to be between $298.0 million and $408.0 million or income per diluted share of $0.30 to $0.40. Capital expenditures are expected to be approximately $525 million. It is currently working on remodeling around 300 stores every year. It is expected that by the end of 2015, RAD will be able to convert half of its stores to wellness centers, considering its present momentum. It has transformed 1,215 stores to its wellness format until now.
It has already enrolled 1.7 million elderly consumers in the Wellness 65+ loyalty program and has converted approximately 1,200 stores to its wellness format. It expects to have around 1,600 converted stores by the end of this year.
RAD is doing all it takes to foster its growth. It has upgraded its stores and is concentrating on expanding its product lines. The company has the potential to excel in the times to come. Pharmacy stocks have always been investors’ favorite. It has strong fundamentals and the projected numbers are good. It is focusing on leveraging cost structure and investing in new stores. Backed by customer loyalty programs, remodeling efforts and initiatives to cut costs, RAD is still on the right track.