Rx sales, not hurricane, hit Rite Aid with 2Q loss

Drug Store News,  Oct 10, 2005  by Michael Johnsen

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CAMP HILL, Pa. -- Despite slim gains in both pharmacy and front-end same-store sales, Rite Aid reported a second quarter loss of $1.6 million for the period ended Aug. 27. And while Hurricane Katrina was not to blame--the storm made landfall Aug. 29--Rite Aid cited weak pharmacy sales as the reason behind the slight loss. The good news is pharmacy sales are improving," noted Mary Sammons, Rite Aid president and chief executive officer, during an analyst call last month. "We continue to see substantial increases in our already-high generic dispensing rates, which Sammo's noted were "up nearly 400 basis points compared to last year's second quarter and more than 70 basis points compared to the first quarter. This puts Rite Aid in an excellent position to capitalize on the $70 billion in new generics expected to come to market between now and 2010."

The No. 3 chain posted positive comp gains of 0.5 percent overall, representing a same-store sales growth of 0.8 percent in the pharmacy and a same-store sales increase of 3 percent in the front end. Our sales are trending in the right direction," Sammons said.

And while Hurricane Katrina certainly had a significant impact on Rite Aid's retail operations in-the Gulf Coast region, the chain is maintaining its year-end earnings projections. "The Monday after the hurricane, we had 109 stores closed in Mississippi, Alabama and Louisiana, including 29 in the greater New Orleans area," Sammons said, primarily because a loss of power. As of late last month, there were only 24 stores that remained closed. "Because of our business interruption and other insurance coverage, loss or damage from Katrina has not impacted our [end-of-year earnings] guidance," Sammons said.

Going forward, closed stores are going to be excluded from same-store sales calculations.

Rite Aid projects fiscal 2006 revenues to be in the range of $17.1 billion to $17.4 billion based on same-store increases of between 0.5 percent and 2 percent. Adjusted EBITDA is expected to fall within $675 million and $725 million.

Rite Aid currently is gearing up for the implementation of the Medicare Modernization Act of 2003 as prescription drug plans are introduced to the Medicare population this month. The chain is planning a market-by-market advertising campaign surrounding the new Medicare drug benefit that will present the Rite Aid pharmacist as a key resource for seniors, but executives declined to provide details of the campaign. "We believe our senior Living More loyalty program, which already provides special benefits and discounts to over 1.6 million seniors, will give us a head start on being the pharmacy of choice for seniors and all Medicare beneficiaries, Sammons said.

In other news, Rite Aid named three new board members: Joseph Anderson, chairman of the board and chief executive officer of TAG Holdings; Robert Mariano, chairman and chief executive officer of Roundy's Supermarkets; and Marcy Syms, chief executive officer of SYMS Corp.

In the second quarter, the company relocated nine stores, acquired two stores, closed 11 stores and remodeled 60 stores. Rite Aid also completed 49 prescription file buys and opened 31 new GNC store-within-a-store departments, bringing the chain's total GNC departments to 1,096. Stores in operation at the end of the quarter totaled 3,345.

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