Rite Aid posts $118.1 million profit for fiscal year 2013

Stronger front-end sales, pharmacy script count drive improved results

CAMP HILL, Pa. — Rite Aid's profits grew in fourth quarter and fiscal year 2013 amid stronger front-end sales and prescription count, the retail pharmacy chain said Thursday.

The company reported a $123.1 million profit for the fourth quarter and a $118.1 million profit for the fiscal year, compared with respective losses of $161.3 million and $368.6 million during the same period last year. In third quarter 2013, the company reported a profit of nearly $62 million, its first in five years, which together with the fourth quarter's results helped deliver the company's first profitable fiscal year since 2007.

Behind the results was a combination of stronger sales in Wellness-format stores, retention of most patients who switched to Rite Aid during the dispute between Walgreens and pharmacy benefit manager Express Scripts - which ended last year, but forced millions of Walgreens customers to fill their prescriptions at other retailers - the Wellness+ loyalty card program and increased use of generics.

"Together, we are successfully transforming Rite Aid into a true neighborhood destination for health and wellness," president, chairman and CEO John Standley said in a conference call with analysts to discuss the results.

Of the chain's 4,623 stores, 797 are Wellness stores, and CFO and chief administrative officer Frank Vitrano said during the call that the format's front-end comps exceed those of non-Wellness stores by more than 3%. A major factor is the Wellness Ambassadors, specially trained staff members who walk the aisles of the stores with iPads and provide information on health and wellness products and pharmacy services, acting as a "bridge" between the front end and pharmacy. The company reported that it had 1,300 Wellness Ambassadors trained at the end of the quarter. "Simply put, our Wellness Ambassadors can help grow our business by providing strong customer relationships," COO Ken Martindale said during the call.

The company plans to remodel 400 more stores in fiscal year 2014, the "vast majority" of which will be remodeled according to the updated "Genuine Well-Being" format, similar to the updated Wellness store in Lemoyne, Pa., featured in a recent video on Drug Store News' website. For this purpose, $175 million of the $400 million Rite Aid plans to invest in the year has been set aside.

In addition to the lift from Wellness stores, the company has seen a 3% benefit in pharmacy comps, thanks in large part to the retention of customers from the Walgreens-ESI dispute. Vitrano said the company had retained 75-80% of the scripts it gained from the dispute. While the company expects that it may continue to lose some of those customers, it nevertheless expects to retain most of them.

A major factor in that retention has been the Wellness+ loyalty card program. To date, the program has nearly 25.2 million active members, defined as those who have used it at least twice over the past 26 weeks. Members accounted for 79% of front-end sales and 68% of prescriptions filled, Martindale said, adding that Gold and Silver members have continued to increase in number, and more than 50% of those customers shop at Rite Aid stores every week.

Another factor in the company's growth has been patients with multiple chronic health conditions, also known as poly-chronic patients, who tend to be elderly. Standley said a "big chunk" of the chain's scripts and "virtually all" of its best customers were poly-chronic patients.

Vaccinations also beat the company's expectations, as it performed 2.4 million flu vaccinations and 400,000 vaccinations for conditions like pneumonia, shingles and whooping cough. The company had expected to perform 2 million flu vaccinations during the year.

Sales for the fourth quarter were $6.5 billion, compared to $7.1 billion in fourth quarter 2012. Sales for fiscal year 2013 were $25.4 billion, compared to $26.1 billion in fiscal year 2012.

Same-store sales for the quarter decreased 2%, including a 0.3% increase in front-end same-store sales and a 3.1% decrease in the pharmacy. For the fiscal year, same-store sales decreased 0.3%, including a 1.4% increase in front-end same-store sales and a 1% decrease in pharmacy same-store sales. Same-store prescription count increased 3% for the quarter and 3.4% for the fiscal year.

The decrease in total-store and same-store sales was due to one less week in fiscal year 2013 and also because of greater dispensing of generic drugs. The company noted that while the large-scale shift to generics - also known as the generic wave - results in lower sales, it also helps to drive gross profit.

Wall Street responded with optimism to the results. "Importantly, the underlying business, excluding the generic benefit and the Walgreen windfall, appears quite healthy," Guggenheim Partners analyst John Heinbockel wrote in a note to investors. Rite Aid's stock was trading at $2.08 per share in late-morning trading Thursday, up from $1.98 at the start of the day.


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