Wellness+ will position Rite Aid to grow

WHAT IT MEANS AND WHY IT'S IMPORTANT — Rite Aid’s launch of Wellness+ for Diabetes comes at a time when it looks like the 4,694-store retail pharmacy chain’s fortunes are picking up in a big way.

(THE NEWS: Rite Aid launches Wellness+ for Diabetes. For the full story, click here)

Tucked inside the company’s second quarter 2012 earnings call on Sept. 22, when president and CEO John Standley first mentioned the Wellness+ program extension, was a remark by CFO, chief administrative officer and senior EVP Frank Vitrano, that the quarter’s $6.3 billion in revenues marked the first increase in total sales in 13 quarters, due to higher comps and fewer store closings.

From Wellness+ to Wellness+ for Diabetes, from Wellness stores to virtual clinics, the story of Rite Aid has a new author, and it shows in the company’s results. A year ago, Wellness+ Gold members had basket rings 78% higher than nonmembers; today, that number is 128%. Meanwhile, sales at Wellness stores have trended ahead of the chain’s core stores.

Wall Street has taken note as well.

Analyst John Heinbockel of Guggenheim Partners said that the increase in Wellness+ members to 44 million and the completion of 40 Wellness store remodels — which he estimated to provide a comp lift of 7% to 10% — combined with other factors would drive EBITDA for 2012 to $950 million, “even if the economy remains soft.” EBIDTA in fiscal year 2011 was $859 million.

While saying that momentum was “slowly, but surely, continuing to build,” analysts at Goldman Sachs noted that Wellness+ had been successful in retaining customers, but suggested that it be used to draw new customers as well. “We remain cautiously optimistic that RAD’s ability to draw customers to its stores instead of its competitor’s stores will drive sales growth in the coming year,” the report read, noting that possible competitive responses to Wellness+ could present a risk.

Still, with the boost in membership and the launch of Wellness+ for Diabetes — allowing the chain to tap directly into a 26 million-strong market — Wellness+ is one of the growing number of ways that Rite Aid is positioning itself for growth and opportunities now and in the years ahead.

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