All Is Not Yet Right at Rite Aid

By Shubh Datta | More Articles
June 27, 2011 | Comments (8)

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Drug retailer Rite Aid (NYSE: RAD ) reported a fiscal-first-quarter loss that was less than expected, and confirmed that it is on track to achieve its full-year guidance.

After 10 straight quarters of declining sales, Rite Aid saw sales hold basically flat for a second consecutive quarter on the back of its customer rewards program. However, Fools should note that sales for the Pennsylvania-based retailer haven't grown at the same rate as at larger industry peers Walgreen (NYSE: WAG ) and CVS Caremark (NYSE: CVS ) .

Let's delve a little deeper into the numbers to see how Rite Aid performed this quarter.

A look at the numbers
Revenues for the quarter remained more or less stagnant at $6.39 billion, compared to the year-ago period. Positive same-stores sales of 0.8% helped push up revenues in spite of overall store closures, which pulled that revenue figure down. Losses narrowed to $65.5 million, from $76 million a year ago. The company reported a loss per share of $0.07.

What worked well for Rite Aid this quarter was its Wellness Plus customer rewards program. It now has nearly 40 million members. Wellness Plus members accounted for more than 67% of sales of cosmetics and food and around 62% of prescription sales.

To boost sales, Rite Aid plans to remodel some 500 of its 4,600 stores this fiscal year. The company is also planning to expand its Save-A-Lot Rite Aid stores, which it runs in conjunction with SUPERVALU (NYSE: SVU ) . These stores have shown solid sales growth.

The company produced free cash flow of $336.5 million, down from $484.4 million in the year-ago period. The company has tended to burn cash in the other three quarters.

The Foolish bottom line
Rite Aid is in the midst of reinvigorating itself, and it forecasts losses during this transformative period. It sees full-year losses of between $0.42 and $0.64 a share, compared with a loss per share of $0.64 a year ago. For now, I think it is best to view this stock with caution. Until it fully turns around, I'm a bit nervous to stick my toes into this stock.

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Shubh Datta doesn't own any shares in the companies mentioned above. The Motley Fool owns shares of SUPERVALU. Motley Fool newsletter services have recommended buying calls in SUPERVALU. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On June 28, 2011, at 8:13 AM, ctyank99 wrote:

Here you go bashing Rite Aid again. There's something wrong with you people at Motley Fool. Rite Aid has been coming out with the best news it's had in years and what do you do, bash them again! The've had increased same strore sales for months (5 or 6 months in a row now) and they're turning the company around. I think they're a great buy and you're doing your readers a disservice by continually pointing out any negatives you can find.
Report this Comment On June 28, 2011, at 2:09 PM, CTadvocate wrote:

This company is one of the WORST run companies I have ever seen, then the CEO has the nerve to DOUBLE his salary. Rite Aid will never survive being #3 because people want value for their money, something Rite Aid can't and won't offer. I look forward to the day when they go under.
Report this Comment On June 28, 2011, at 7:42 PM, snm928 wrote:

Shubi Do... You all should really give it a rest. Not knowing any better, you would think the Fools really got hammered by investing in RAD and, as God as your witness, you will get even. Piling on RAD by the Fools is the reason I cancelled my newsletter subscription. At some point, by stating the obvious (over and over in different ways), you lose your credibility. Good luck.
Report this Comment On June 29, 2011, at 6:44 PM, ctyank99 wrote:

To all of you that own Rite Aid, be sure to shop there. If every shareholder shopped at Rite Aid, it would help!

Let's prove the Fool's wrong!
Report this Comment On June 29, 2011, at 6:47 PM, ctyank99 wrote:

To: CTadvocate...another RAD basher. Are you short RAD and feeling the pinch. RAD offers value (they have the best proced products of WAG and CVS) and I like RAD. I've been going there for years. They've built new strores, remodeled some, and closed losers. They are making a comeback. GFet long or lose!!!
Report this Comment On June 29, 2011, at 6:51 PM, ctyank99 wrote:

Rite Aid does have debt. Anyone that follows Rite Aid knows that. That's their biggest challange. The rest of their financial picture is looking brighter, though. They've had six months of increased same store sales. They closed "loser" stores. They've relocated stores and build some beautiful new stores.
Pharmacy same-store sales have improved despite headwind from new generic introductions. Prescriptions filled at comparable stores have increased and continue to increase.
Cash flow is not an issue.
This is all great news as far as I'm concerned. I've been buying RAD and I'm bullish long term.
Report this Comment On June 29, 2011, at 6:57 PM, ctyank99 wrote:

Don't forget: Rite Aid does generate over $25 billion in annual revenues and those sales will be very valuable when the company's income statement is improved.
Report this Comment On June 30, 2011, at 5:47 AM, CTadvocate wrote:

@ctyank99 : I would shop there too but the big beautiful new store they built here is now a Dollar Tree. You are correct however, it is a nice store.

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