Rite Aid Q1 Sales Overview: Investments in Store Remodeling Are Starting to Payoff

Rite Aid (NYSE:RAD), the third largest drugstore chain in the U.S., ended its fiscal 2015 on a strong note. (Fiscal years end with February.)  In spite of continued headwinds, the company exceeded its full year guidance, which it had raised after an impressive Q3. This outperformance was primarily driven by higher front-end and pharmacy sales. While a more severe flu season worked in favor of Rite Aid, it was partially offset by the launch of new generics (which being cheaper lowered the price per prescription).

In the current fiscal year, Rite Aid expects script growth to benefit from the Affordable Care Act, favorable demographics, growth in immunizations and other initiatives. Below we will take a look at how the company fared so far this fiscal year (in terms of sales) and a few underlying growth drivers.

View our detailed analysis for Rite Aid

Monthly Figures Indicate a 3% Growth in Q1 Same-Store Sales

Rite Aid still releases its monthly sales figures, which its competitor Walgreens discountinued last year. During March, April and May this year, Rite Aid clocked year-over-year growth rates of 4.3%, 3.0% and 2.1%, respectively, in its same-store sales. At a quarterly level, same store sales for the 13-week period ended May 30, 2015 increased 2.9 percent year-over-year, slightly higher than the 2.7% top line growth that the company achieved during the same period last year.

While more insight into what is driving sales higher might be provided during the Q1 earnings release next week (June 18th), we believe that the company’s investments in store remodeling are starting to payoff.  By the end of Q4 2015, the company had a total of 1,634 wellness stores which represents about 36% of the entire Rite Aid chain. These remodeled stores continue to outperform the rest of the chain in terms of both front-end and prescription sales. The company plans to complete 400 additional Wellness remodels in fiscal 2016.

Launch of Wellness+ Plenti Rewards Program Will Positively Impact Sales

Wellness+ is Rite Aid’s rewards program which helps enrolled members earn rewards based on the accumulation of points for certain front-end and prescription purchases. As of February 28, 2015, the wellness+ program had nearly 25 million active members, who accounted for 78% of front-end sales and 67% of prescriptions filled in fiscal 2015.

The company recently announced the launch of an enhanced version of wellness+ by joining consumer loyalty coalition Plenti, which will be called “wellness+ with Plenti”.  It works similar to the existing loyalty program, i.e. members  earn Plenti points whenever they buy something at Rite Aid, which can accumulate into bigger savings on future purchases at Rite Aid and other Plenti partners.  THese include retailers such as AT&T, ExxonMobil, Macy’s, Hulu,  etc. Through wellness+ with Plenti , members will continue to earn wellness+ points effectively earning two kinds of points using one card.

Rite Aid believes that this enhancement will significantly increase the appeal of its already successful loyalty program, creating more reasons for new and existing customers to shop at Rite Aid more often.

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