For the third quarter of fiscal 2007, Rite Aid (NYSE:RAD) stepped back into the black, reversing last year's $5.2 million loss into $1.1 million in net income. Overall, results were positive, and the company appears to be gradually improving results.

The company operates more than 3,300 drugstores, and it's in the process of acquiring 1,850 Brooks and Eckerd drugstores from The Jean Coutu Group. Rite Aid increased total sales 4.2%, while same-store sales rose 3.4%, on a mix of a 4.3% increase from pharmacy sales (which account for 64.3% of total sales) and a 1.9% increase in front-end (or non-prescription) products. Operating margin increased 24 basis points, as improved labor cost controls offset a decrease in gross margin caused by items such as promotional pricing.

In the conference call, management noted that it believes its customers have not and will not defect to Wal-Mart's (NYSE:WMT) $4 generic pricing program, thanks to Rite Aid's convenience, location, and service. In fact, management believes that Wal-Mart is selling below cost, and may have to increase its pricing. Rite Aid also stated that the proposed merger between Caremark (NYSE:CMX), a pharmacy benefits manager (PBM), and competing drugstore CVS (NYSE:CVS) would probably not have too great of an effect on its own operations. (Incidentally, fellow PBM Express Scripts (NASDAQ:ESRX) threw its hat into the bidding recently.) Rite Aid noted it has good relationships, as well as long-term contracts, with the PBMs involved, and it has no plans of acquiring its own PBM.

In terms of its own acquisition of the Brooks and Eckerd drugstores, management believes its integration plans are on track. Shareholders will vote on the merger on January 18, 2007, and the company expects to receive shareholder, as well as regulatory approval. Rite Aid has two much larger and extremely well-run competitors in CVS and Walgreen (NYSE:WAG), so regulatory hurdles shouldn't be a problem. Management noted that Rite Aid's 35% non-pharmacy sales mix was better than Brooks' and Eckerd's stores, and that it could improve that area of productivity.

All in all, although the results weren't a blowout, the quarter seemed pretty decent. Given past problems and the company's heavy debt load, small improvements are extremely welcome.

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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates comments, concerns, and complaints. The Motley Fool has a disclosure policy.