Rite Aid posts third consecutive quarterly profit as company expands Wellness+

Company sees increases in Wellness+ members' share of sales, number of Gold and Silver members

CAMP HILL, Pa. — Rite Aid posted its third consecutive profitable quarter Thursday morning as it launched the largest extension to date to its loyalty card program and continued growing the latest iteration of its new store format.

The company announced Wednesday the launch of Wellness65+, an extension to the Wellness+ loyalty program aimed at elderly customers, amid sustained growth in the program overall. At the end of first quarter 2014, Wellness+ counted about 25 million active members, defined as those who use their cards at least twice over the past 26 weeks. Members accounted for 77% of front-end sales and 70% of prescriptions filled, both indicating growth over first quarter 2013, while the number of Gold and Silver members, the program's most frequent users, increased by 4%.

Poly-chronic patients, who are those with multiple chronic conditions, are among Rite Aid's most important customers, and most of them tend to be elderly. "We think Wellness65+ will give seniors a compelling reason to become loyal Rite Aid customers," president, chairman and CEO John Standley said in a conference call with Wall Street analysts to discuss the results.

COO Ken Martindale said that the company was working on modifying workflows and building Wellness65+ into the daily activities of employees, with pharmacists as the primary staff engaging with patients, but it was not anticipated that the program would create much extra work overall.

Enrollment in Wellness65+ includes an expanded consultation with the pharmacist, and pharmacist-patient consultations in general also have seen growth, as the company registered a 68% increase year-over-year in medication therapy management sessions. While MTM is not a significant contributor to revenue, Standley highlighted its ability to improve health and lower healthcare costs.

The company has also pushed forward with its expansion of the Wellness store format, converting 108 stores to its latest iteration, dubbed Genuine Well Being and originally showcased last year in a Lemoyne, Pa., store. Currently, 905 of the chain's 4,615 stores have been converted to Wellness stores, with the goal of having about 1,200 converted by the end of fiscal year 2014. Front-end sales at Wellness stores are about 3.5% higher than non-Wellness stores, while pharmacy sales have not tracked as high, but are still positive.

More than 1,500 Wellness Ambassadors — specially trained staff who man the aisles with tablet computers to provide information on health and wellness products and serve as a "bridge" between the front end and the pharmacy — have been hired. Martindale said Wellness Ambassadors also were important for serving as a bridge between the store and the overall community and would play a critical role in pushing Wellness65+.

Wellness65+, Martindale said, would give customers "a pathway for building strong relationships with our associates and understanding how the Rite Aid experience goes far beyond filling prescriptions."

For the quarter, the company reported sales of $6.3 billion, compared with $6.5 billion in first quarter 2013, with the decrease resulting largely from new generic introductions. Same-store sales decreased by 2.5% for the same reason, including a 3.8% decrease in pharmacy sales and a 0.4% increase in front-end sales. Same-store prescription count decreased by 0.1%, and the company noted that it had maintained about 75% of prescriptions from last year's Walgreens-Express Scripts dispute. Prescription sales accounted for about 67.5% sales overall. Profit for the quarter was $89.7 million, compared with a $28.1 million loss in first quarter 2013.

The company expects fiscal 2014 sales of between $24.9 billion and $25.3 billion and profit of between $22 million and $162 million, as well as same-store sales 0.75% lower or 0.75% higher than fiscal year 2013.

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