Rite Aid posts $71.5 million profit in third quarter 2014

Number of Wellness stores stands at 1,117

CAMP HILL, Pa. – Rite Aid appears to be transitioning from a turnaround phase to one in which it's looking more toward future opportunities, company executives suggested in a conference call Thursday morning when announcing the chain's third quarter 2014 results.

The company's $415 million capital-expenditure budget for 2014 includes plans for 415 Wellness stores, including 400 remodels, 14 relocations and one completely new store. "I think the bigger point probably is that we're at this transitional point in our company," chairman and CEO John Standley said. "It's kind of been 'turnaround, turnaround, turnaround' for some time," but Rite Aid now has enough free cash flow that it's starting to look at its real estate "in a different way" and looking at additional opportunities. "That's pretty exciting and fun," he said.

The chain currently has 1,117 Wellness stores in operation, having remodeled 94 during the quarter, and their performance has continued to exceed those of non-wellness stores, including front-end sales that are 3.2% higher and 1.4% higher script growth.

The company has trained 1,900 Wellness Ambassadors and is also piloting the Beauty Vision concept in several stores. The company is also piloting a new merchandising initiative focused on "creating a more engaging shopping environment" in health categories, combining educational materials, interactive product displays, cross-merchandising and creative fixturing, president and COO Ken Martindale said.

And on Thursday, Rite Aid announced the extension of its 15-year-old partnership with Pittsburgh-based GNC through 2019, allowing for the construction of at least 300 new LiveWell store-within-a-store locations in addition to the more than 2,200 already in the chain. But president and COO Ken Martindale said there was no cap on the number of GNC stores.

"We've kind of rejuvenated efforts to grow this business together," Martindale said, saying the company had been "kind of distracted" with its turnaround efforts. "It's going to be a very big part of our business going forward."

Wellness65+, an extension to the Wellness+ loyalty program aimed at seniors, has 1.3 million members. Meanwhile, the company has administered 2.4 million flu shots and expects to meet its goal of administering 2.5 million during the fiscal year. The chain also has made improvements to its mobile app, which accounts for 50,000 prescription refills per week and has enhanced e-commerce capabilities and functionality, Martindale said.

Standley also had some things to say about the idea of in-store clinics, an area in which Rite Aid has not invested as much as rivals Walgreens and CVS, both of which have established nationwide retail clinic networks. Rite Aid's focus has mostly been on polychronic patients, meaning patients with multiple chronic conditions, and the issue was how well in-store clinics would work for those patients. "It's not a question of whether or not the clinic patients are profitable," Standley said, adding that some factors made clinics "more compelling" today. "The question is how integrated it is into the overall pharmacy model."

Rite Aid posted sales for the quarter of $6.4 billion, compared with $6.2 billion in third quarter 2013, with a profit of $71.5 million, compared with $61.9 million during the same period last year. Same-store sales increased by 2.3%, including a 3.5% increase in pharmacy same-store sales, offset by a 0.88% decrease from the introduction of new generic drugs and a 0.2% decrease in front-end same-store sales. Same-store script count increased by 0.7%. For fiscal 2014, the company expects sales to be between $25.3 billion and $25.425 billion, with an increase in same-store sales of between 0.35%-0.85% compared with fiscal year 2013.

Note: This story has been updated with additional information.

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