Rite Aid’s Raised 2012 Outlook Supports $1.45 Value

by Trefis Team
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Rite Aid
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In Rite Aid’s (NYSE:RAD) recently third quarter results, the company posted its fourth consecutive quarter of comparable store sales growth with improved pharmacy sales despite lower priced generic introductions. The key drivers for this turnaround have been its April 2010 launched Wellness+ Loyalty program and its immunization program. It has also raised its guidance for fiscal 2012. Rite Aid is the U.S.’s third largest retail pharmacy chain competing with Walgreen (NYSE:WAG) and CVS Caremark (NYSE:CVS).

See our complete analysis of Rite Aid

Lower Losses, Improved Guidance for Fiscal 2012

With the continued strength of Wellness+ Loyalty program that now has 47 million members and immunization initiatives, Rite Aid has posted a fourth consecutive quarter of comparable store sales growth and raised fiscal 2012 guidance. In the third quarter, revenues increased 2% primarily as a result of an increase in same store sales. This was helped by 3% higher pharmacy sales despite 163 basis point negative impact from new lower priced generic introductions. The number of prescriptions filled in comparable stores increased 0.5% over the prior-year period.

The gross margin decreased due to higher markdowns associated with wellness+ program and continued reimbursement rate pressures. Yet selling, general and administrative expenses as a percentage of revenue declined to 25.2%, compared to 25.7% last year (y/y) due to lower depreciation and amortization, salaries and corporate overhead expenses.

The improvement in key metrics has resulted in lower net loss for the first three quarters of fiscal 2012, which now stand at $207 million, compared to $350 million for the same period last year. Rite Aid has been renovating, relocating and shutting down its under-performing stores to improve its profitability and boost comparable store sales to catch up with its larger competitors Walgreen and CVS Caremark.

We have a revised $1.45 Trefis price estimate of Rite Aid stock, which is about 8% ahead of the current market price.

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