Is Rite Aid Really Back?

On Thursday, Rite Aid (RAD -20.53%) will release its latest quarterly results. The drugstore chain has gone through plenty of ups and downs in recent years, but lately, the stock has made an impressive advance that points to the prospect of better times ahead for the company.

Rite Aid isn't quite as large as its competitors, but with more than 4,600 stores in more than 30 states within the U.S., the company certainly maintains a strong presence within the industry. It got an opportunity handed to it on a silver platter last year, but as the dust has cleared, can Rite Aid make the most of that opportunity? Let's take an early look at what's been happening with Rite Aid over the past quarter and what we're likely to see in its quarterly report.

Stats on Rite Aid

Source: Yahoo! Finance.

Will Rite Aid keep making money this quarter?
In recent months, analysts have only become more optimistic about Rite Aid's prospects, tripling their views on earnings per share for the May quarter while adding about $0.15 per share to their calls for both this fiscal year and next. The stock has responded in kind, soaring almost 70% since mid-March.

Rite Aid has impressed investors with its results lately. In its previous quarter, the company posted its second quarterly profit in a row, helping it turn a profit for the fiscal year. The combination of a bad flu season, a rise in the number of higher-margin generic drugs on the market, and the customers that Rite Aid gained from Walgreen (WBA -0.93%) during the latter's dispute with pharmacy benefit management company Express Scripts all led to Rite Aid's first moneymaking year since 2007.

Still, Rite Aid has been moving in the wrong direction when it comes to store counts. In order to manage its debt, Rite Aid has closed underperforming stores. At the same time, though, both Walgreen and CVS have opened new locations, extending their reach and threatening traditional areas of strength for Rite Aid.

Moreover, Rite Aid has announced some troubling results so far this quarter. April same-store sales fell 4%, while the company suffered another 1.5% decline in same-store sales in May. Part of the problem has come from the return of Express Scripts customers to Walgreen, as Walgreen reported a 7% increase in same-store prescription count during its March-May quarter, while Rite Aid saw lower counts in both April and May.

In Rite Aid's quarterly report, look for information about how the company's store remodelings are doing in spurring new sales. If the renovations are only sustaining existing business rather than driving new customers into stores, then Rite Aid could be looking at a failed turnaround before too long.

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