Rite Aid: Upbeat November Sales Support $1.38 Fair Value
Rite Aid (NYSE:RAD), the U.S.’s third largest retail pharmacy chain competing with Walgreen (NYSE:WAG) and CVS Caremark (NYSE:CVS), recently announced its November revenues. Same Store sales increased 2%, primarily due to improved Pharmacy sales that accounted for 68% sales. Pharmacy same store sales grew 3% with 1% more prescriptions filled by each Rite Aid store, despite a 160 bps negative impact from new lower-priced generic introductions. However, front end sales decreased 0.6% compared to the same period last year. The company is due to announce its third quarter results next week.
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Rite Aid’s second quarter delivered improved metrics and guidance for 2012, and the third quarter continued the steady growth trends, backed by the company’s Wellness Plus loyalty program launched in last year. Same store sales for the third quarter have increased 2% helped by more prescription filled per store leading to a 3% rise in pharmacy same store sales despite lower-priced generics introductions. Sales at Rite Aid stores have picked up driven by the launch of a loyalty program and flu administration initiatives. Yet, front-end same store sales remained flat.
Rite Aid’s target is to improve its profitability by driving up same store sales. It has also been renovating, relocating or even shutting down its under-performing stores to catch up with its larger competitors Walgreen and CVS Caremark in terms of key metrics like prescriptions per store and front-end sales per unit area of retail space. The company is due to announce its detailed third quarter results next week. We expect the company to continue with the improving performance over coming quarters. It will also see an upside in its bottom-line as the generic wave gets stronger with Ranbaxy’s blockbuster drug Lipitor recently getting off patent. It is also likely to benefit from Walgreen-Express Scripts dispute to see more pharmacy customers next year.
We have a $1.38 Trefis price estimate of Rite Aid stock, which is about 15% ahead of the current market price.
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