Post-Eckerd turnaround exceeds expectations

Report
Annual
Post-Eckerd turnaround exceeds expectations
BY MICHAEL JOHNSEN
Rite Aid began posting
same-store sales results across
its acquired Brooks/Eckerd
store base in June, and already
the chain is painting a more
rosy picture. Rite Aid’s July
comp results were well ahead
of several analyst expectations, including Lehman
Brothers, which had projected
July comp sales of 2.7 percent
across Rite Aid’s legacy store
base versus actual same-store
sales improvements of 3.8 percent. Across the Brooks/
Eckerd store base, Lehman
Brothers analyst Meredith
Adler had projected negative
same-store sales results of –4.6
percent, versus actual results
of –3.8 percent.
If Rite Aid can continue
that improvement across the
Brooks/Eckerd stores, the
perception of Rite Aid ought
to change from a can-theydo-it company to a they-can-
do-it company, marking
feather No. 2 in the proverbial caps of the company’s
turnaround specialists—the
first “feather” was for Rite
Aid’s turnaround of its core
business earlier this decade.
“Front-end results were
particularly encouraging,”
Adler noted. “With legacy
Rite Aid reporting its best frontend comp since November
2005 and Brooks/Eckerd realizing 430 basis points of sequential improvement from June despite the increasingly difficult
external environment,” she
said. “We continue to expect
sequential improvement at
Brooks/Eckerd with comps
turning positive in September, and we expect core
Rite Aid stores to show
modest improvement due to
an easy comparison, more
new stores and relocations
and a better promotional
program.”
Goldman Sachs’ analyst,
The Brooks/Eckerd acquisition already is paying dividends for Rite Aid, which has seen comp-store results exceed analysts expectations, especially in terms of front-end sales.
John Heinbockel, who has
historically been a little more
critical regarding Rite Aid’s
potential going forward, also
used the word “encouraging” to describe Rite Aid’s
July results. “This is encouraging in that it suggests that
Rebranding builds sales growth
Rite Aid is fast approaching the completion of assimilating its Brooks/Eckerd
acquisition of last year. By
October, the chain expects to
have completed the last of
its minor remodels, rebranding all of its acquired
stores as Rite Aid inside and
out and removing from the
drug store landscape a retail
brand, in Eckerd, that still
had been tainted by illadvised promotional programs and frequent out-ofstocks from its days
under the stewardship of
JCPenney.
As a result, customer
feedback is inching back up
in those Brooks/Eckerd
stores that have completed
the transformation; and
comparable sales, while
still negative as of the end
of July, are trending in a
positive direction.
CONTINUED ON PAGE 5
Drug Store News
Before (top) and after (bottom): Rite Aid is expecting to have all its acquired Brooks
and Eckerd stores rebranded inside and out by October and states it has seen
improvement in customer feedback.
www.drugstorenews.com
the business may be stabilizing despite the difficult economic environment which,
in turn, could limit the
downside in 2008 EBITDA to
roughly our $1 billion estimate,” he said. “The pickup
has actually been so strong
that it raises two related
questions: One, is it being
driven by promotions; and
two, how sustainable is it?”
And while promotions
may certainly play a factor
in those better-than-expectCONTINUED ON PAGE 6
Refinancing provides
flexibility for growing chain
In July, Rite Aid completed another round of debt
refinancing, which included
issuing new debt, in a move
that provides greater flexibility for the chain as it nears
completion of the conversion of the Brooks/Eckerd
stores, especially given the
current economic climate
and uncertainty in the capital markets.
The refinancing pushed
Rite Aid’s debt needle higher, to $6.05 billion from $5.98
billion, but in so doing,
pushed most of that debt
out beyond 2013. A highly
leveraged company operating during a potentially
recessionary economy has
certainly raised many eyebrows among analysts
along Wall Street. However,
there are no concerns over
Rite Aid’s liquidity in the
vendor community.
Rite Aid didn’t exactly
have liquidity issues before
the refinancing, and they
certainly have a lot fewer
concerns about having access to cash flow now.
“We had just increased
our size by more than 50
percent and embarked on a
16-month integration of
more than 1,800 stores that
called for integrating six
new distribution centers,
converting all store systems, adding 8,000 items of
new merchandise and a
minor remodel program to
make the stores all look and
feel like Rite Aid,” Mary
Sammons, Rite Aid chairman, president and chief
executive officer, told
CONTINUED ON PAGE 5
September 2008 • 1
Report
Annual
Rite Aid hopes new promotions ‘fuel’ Rx growth
BY MICHAEL JOHNSEN
Across a national drug retailing
landscape where just filling a prescription increasingly is becoming a commodity, Rite Aid in the past few
months, has implemented a number of
programs designed to capture a
greater share of scripts.
The chain last month expanded its
Rite Aid Rx Savings Card into the
Georgia, North Carolina and South
Carolina markets, hoping consumers
there will come to equate the Rite Aid
brand with savings on prescription
drugs and over-the-counter medicines.
Introduced in Michigan three
months ago, the Rx Savings Card
includes a 20-percent discount on all
generic medications and most branded drugs, and offers more than 400
generic medications at a flat $8.99 for
a 30-day supply or $15.99 for a 90day supply.
The card also is good for a 10 percent
savings on all Rite Aid store brands.
While anyone can apply for the
Rite Aid Rx Savings Card, it will
especially benefit residents who have
no or limited prescription drug insurance, explained Bill Wolfe, Rite Aid
group vice president of managed care
and government affairs. “With nearly
50 million people in the United States
without health insurance, there is a
Rite Aid recently has added such programs as Fill Up and Fuel Up, offering $30 Rite Aid gift cards and a chance
to win a year of free gasoline, in an effort to gain a greater share of prescriptions. The chain also has expanded
its Rx Savings Card program into the Georgia, North Carolina and South Carolina markets.
serious need for a card like this to
help people take care of themselves
and their families,” Wolfe said.
In addition to the Rx Savings Card,
Rite Aid in June introduced its Fill Up
and Fuel Up program, which entices
patients to transfer their prescriptions
in exchange for a $30 Rite Aid gift
card and a chance to win a year’s
worth of free gasoline.
Rite Aid also is testing a few other
concepts outside of the traditional
prescription-filling box. Earlier this
year, the chain partnered with
Patient Portal Technologies on a
Philadelphia-area pilot to create a
unique prescription-delivery service
to discharged hospital patients.
“We see [this] as a great opportunity to support the community to
ease the burden of hospital patients,” said Cheryl Slavinsky, Rite
Aid spokeswoman, noting that Rite
Aid is serving as the fulfillment arm
for the delivery operation.
Neither Rite Aid nor Patient Portal
were willing to comment on the specific financial arrangements as part of
the agreement. However, the service
affords Rite Aid an opportunity not
only to bolster its standing and reputation in the community, but also to
potentially grow its share of the
Philadelphia pharmacy market organically with the branding opportunities Rite Aid will have with these discharged patients.
To be called MedEx Home Delivery,
the service will offer free home delivery of prescriptions for hospital
patients who are being discharged,
eliminating their need to stop for the
medication on their way home.
“In today’s competitive healthcare landscape, hospitals are looking for trusted partners to deliver
simple solutions that enhance longterm, customized care for patients,”
stated Kevin Kelly, chief executive
officer of Patient Portal. “Our objective is to continue to manage the
patient experience beyond the traditional four walls of the hospital.”
Patient Portal has been developing
MedEx Home Delivery for the past 18
months, said Trish Corey, vice president of business development at
Patient Portal, and marks the first partnership of its kind in the industry. “This
is really a groundbreaking effort,” she
said. The pilot program will be evaluated over the next 12 months, after which
it will potentially be expanded to other
markets. “Our intent is to move out
nationwide,” Corey said.
CVS/Longs deal won’t deter Rite Aid’s West Coast plans
CVS Caremark’s acquisition of Longs Drug Stores last
month
certainly
places
increased pressure on Rite
Aid’s West Coast operations.
The new CVS California footprint catapults that chain
ahead of Rite Aid as the
biggest drug store chain in the
state—830 (pending store closures) versus Rite Aid’s 606.
California accounts for
12.2 percent of Rite Aid’s
store base.
But don’t expect Rite Aid
to back down. “The West
Coast is a very strong contributor to our overall
results,” said Mary Sammons, chairman, president
and chief executive officer,
2 • September
2008
during a conference call
with analysts held well
prior to the announcement
of the CVS/Longs deal.
Sammons was explaining
the rationale behind not
divesting the West Coast
stores to help lighten the
chain’s debt load. “[The
West Coast] is also a strong
contributor to … scale, our
ability to really have
greater capacity to buy better and do what we do and
leverage expenses,” she
said. “We have strong market shares out there. We’ve
invested a lot of dollars out
there,“ Sammons noted, explaining that any divestiture
would have to be extraordi-
narily lucrative to offset
both the lost cash flows
and buying leverage those
West Coast operations
provide.
“Even under the most
optimistic net proceeds
assumptions, if you will,
the leverage ratio would
not go down much,” said
Kevin Twomey, Rite Aid
executive vice president
and chief financial officer.
“So with the combination of not really being
significantly [de-leveraged] and the loss of
scale and the exit of a
pretty nice growth market, it just doesn’t make
business sense.”
Don’t expect Rite Aid to divest its West Coast stores just because of CVS’ recent
acquisition of Longs Drug Stores.
www.drugstorenews.com
Drug Store News
Report
Annual
GNC partnership supplements strong front end
BY MICHAEL JOHNSEN
One of the bigger drivers—
and differentiators—behind
Rite Aid’s front-end performance is the chain’s partnership with Pittsburgh-based
specialty retailer GNC. Rite
Aid currently operates more
than 1,600 GNC store-withina-store locations, including
366 in the chain’s acquired
Brooks/Eckerd stores.
“We’re really doing a lot
around all of our stores that
have potential to sell GNC,”
Mary Sammons, Rite Aid
chairman, president and
chief executive officer, recently told analysts. “That [partnership] expands our presence in health and wellness,
and that [GNC] customer
carries higher market basket,
higher margin.”
The two retailers renewed
their partnership last year,
with plans to grow to more
than 2,300 locations by
2014.
According to data in
GNC’s annual report, the
specialty channel is projected to grow at a rate of 4 percent per year over the next
five years. And the growing
brand identity of GNC,
now under the direction of
former Rite Aid executive
Beth Kaplan, will continue
to help establish Rite Aid
as a destination center
for dietary supplements.
Rite Aid’s partnership
with GNC took a new twist
earlier this year as the chain
featured several GNC athletes, including bodybuilder
Chad Gregory and professional fitness and figure
competitors Allison Frahn
and Tina Durkin, at the Rite
Aid Health and Beauty Expo in Atlanta. Other celebrities on hand at the Expo
included fitness expert Denise Austin, former NBA
star Dominique Wilkins,
TV’s “Biggest Loser” host
Alison Sweeney and Tae Bo
expert Billy Blanks.
Another boon to Rite Aid’s
front-end performance is the
chain’s commitment to its
healthcare platforms—a series
of six areas that help tie in
pharmacist expertise to the
chain’s front-end selection,
including diabetes management, weight management,
heart health, allergy awareness and skin care.
The chain most recently
introduced its oral care platform this summer, distributing a free oral care guide and
oral care tip book to help
educate customers on the
One of the drivers of Rite Aid’s strong front-end sales is the chain’s partnership with
Pittsburgh-based supplement retailer GNC.
importance of taking care of
their mouths and how oral
health can impact a variety of
health conditions.
As part of the program, Rite
Aid pharmacists have been
trained to offer patients information on proper dental care.
Rite Aid also has boosted
two core drug store drivers
this year—beauty and photo—with new offerings.
Earlier this year, the chain
debuted the c.booth derma
skin care line that was created exclusively for Rite
Aid and a new line of Rite
Aid’s Pure Spring bath and
body products. All products
in the line sell for under $20.
C.booth is the creation of
skin care specialist Colleen
Booth, and is being merchandised as an exclusive high-end
brand line for Rite Aid—
c.booth clinically formulated
skin care—but at a value price.
Many Rite Aid stores also
have added a natural organics section, including bath,
body and skin care products,
reflecting a continuing trend
toward more environmentally-friendly, natural and
organic products. Rite Aid
said the new lines are part of
its strategy to increase its
exclusive brand offerings, as
well as to continue to position Rite Aid as a first-choice
beauty destination.
As many as 76 new exclusive products are being introduced in skin care and bath
categories alone, including
15 products in the new
c.booth line and 61 products
in the Pure Spring line.
Earlier this year, Rite Aid
partnered with Fujifilm
U.S.A. on an all-inclusive
imaging solutions agreement,
which is expected to boost the
appeal of the chain’s photofinishing services.
“Fujifilm will be our partner and the end-to-end solution provider as we relaunch
our photo products business,” said John Pollock, Rite
Aid vice president category
management.
Under the multiyear
agreement, Fujifilm this
summer launched a range of
photography solutions, including online and in-store
photofinishing services and
consumer photo products, at
Rite Aid.
Rite Aid photo centers will
operate using Fujifilm GetPix kiosk instant print solutions and Fujifilm Frontier
Dry Lab solutions.
Charity events clean up for sick children and families
Rite Aid’s brass this summer traded their suits and
ties for jeans and T-shirts
for the company’s ninth
annual Rite Aid Car Wash
event—where executives
washed associates’ cars to
help benefit the Penn State
Children’s Hospital.
Other activities at the event
this year included a Rite-Athalon, in which top executives
competed in three sports
events, including a football
toss, a basketball shoot and a
putting contest. Each Rite Aid
executive competitor had
been challenged to raise at
Drug Store News
least $5,000 in sponsorships
for the competition. And
more than 20 Rite Aid headquarters associates competed
in an inter-departmental Oreo
eating contest.
The chain also added a Rite
Aid Idol contest to the fundraiser this year, in which Rite
Aid associates participated in
a singing contest.
Associates at Rite Aid
stores across the country have
already raised more than $4
million for the Children’s
Miracle Network this year.
From March 23 through May
10, store associates sold more
than 3.4 million paper balloons and held fundraising
events to benefit children’s
hospitals in their hometowns.
All proceeds from the executive car wash event benefit
sick children and their families in the Harrisburg, Pa.,
area through the Children’s
Miracle Network and Penn
State Children’s Hospital.
Rite Aid hoped to raise at
least $200,000 through the
event. Rite Aid has raised
more than $34 million since
1994 for 117 pediatric hospitals that benefit from the
Children’s Miracle Network.
www.drugstorenews.com
Rite Aid chairman, president and chief executive officer Mary Sammons happily
participates in the ninth annual Rite Aid Car Wash, which raises money for sick
children and their families in the Harrisburg, Pa., area.
September 2008 • 3
Report
Annual
SouVez sponsorship builds outreach to new moms
BY MICHAEL JOHNSEN
Rite Aid has set its sights
on an important customer
segment: new mothers. The
No. 3 drug chain earlier this
year became a pre-launch
sponsor of SouVez, a New
York-based marketing communications firm specializing in health care and multiethnic
markets
that’s
preparing to launch a marketing program, called “the
Health Record,” targeting
new moms, in 2009, SouVez
announced last month.
Pre-launched in 2008, the
Health Record already has
reached more than 350,000
mothers across the country.
With a major launch set to
roll out in 2009, the program is projected to cover
25 percent of the new-mom
market nationwide—equating to more than 1.2 million
new moms in 40 states—via
the program’s 600-plus
hospital partners.
The Health Record is a
bilingual journal, personal-
ly signed and hand-delivered by a healthcare professional to new mothers in
hospitals. The program has
been designed to empower
new mothers by helping
them keep an organized,
documented record of
their child’s health and
development, including
immunizations, illnesses,
hospitalization and emergency records, as well as
medical providers and key
medical guidelines.
“We feel the material is of
such value that we are discontinuing our moms and
baby book that we usually
hand out, and are presenting the health record to our
new moms,” said Stephanie
Zinn, marketing manager
of Gerber Memorial Health
Services. “Unlike the other
stuff we give out, I love the
Health Record because it’s
so presentable and not
something parents will
throw away.”
The Health Record offers
numerous leveraging oppor-
tunities for advertisers, as
the program is measurable
and fully integrated and
includes a database for future marketing efforts, couponing, logo brand placement and messaging with
CSR functionality.
Advertisers can present a
range of products or several
brands to new mothers via
one platform while delivering value to the mother, child
and family, or sponsor a public relations or CSR campaign
around the health record.
Partnerships keep retail clinic business healthy, growing
While Rite Aid doesn’t
own a retail clinic operator,
the chain still embraces the
concept on a partner-bypartner/region-by-region
basis. Most recently, Rite
Aid opened four MedStar
PromptCare clinics in Baltimore and Washington this
past summer with clinic
partner MedStar Health.
That deal brings Rite Aid’s
total clinic count to 24.
“Our strategy has been
quite a bit different than our
competitors in that we really
work to partner with local,
well-recognized health providers,” Mary Sammons,
Rite Aid chairman, president
and chief executive officer
explained. “In this instance,
[it] happens to be a physician-staffed clinic,” Sammons said.
The MedStar PromptCare
physicians will be credentialed by and have admitting
privileges
to
MedStar
Health’s hospitals, including
Georgetown University Hospital and Washington Hospital Center in Washington,
as well as Montgomery General Hospital in Montgomery
County, Md., and Franklin
Square Hospital Center,
Good Samaritan Hospital,
Harbor Hospital, and Union
Memorial Hospital, all of
4 • September 2008
which are located in
pick up the free mateBaltimore.
rials, including a 12Earlier this year,
page Healthy Weight
Rite Aid opened its
Guide that includes
third Saint Alphonsus
information on the
Express Care medical
growing obesity epiclinic in Caldwell,
demic and metabolic
Idaho. “This third clinsyndrome, helpful adic is a great addition to
vice on weight manthe two Express Care
agement, a Body Mass
clinics already located
Index calculator, tips
within area Rite Aid
on how to create a
stores, and it offers
healthy diet, informaservices that completion on the imporment the medication
tance of exercise and,
counseling and care
compliments
of
provided by our pharFitness magazine, an
macists,” said Mark de
exercise routine.
Bruin, Rite Aid execu- Rite Aid operates retail clinics in 24 of its stores, including
Rite Aid’s focus on
tive vice president of three ExpressCare clinics.
weight management
pharmacy, in making
is part of its healththe announcement. While the leading medically-super- and- wellness platforms,
the clinics are staffed with vised weight-control pro- which helps bridge the gap
nurse practitioners and grams in the nation, in 2006, between the Rite Aid
physician assistants, those marking one of its first forays healthcare
professional,
who need additional serv- into the retail clinic space. As pharmacist or retail cliniices can access, through part of that partnership, earli- cian, and the front end.
referral, the Saint Alphon- er this year Rite Aid develCurrently, Lindora opersus network of physicians, oped weight-management ates nine health clinics
hospitals and other health- tips and information, as well across Southern California.
care service providers.
as the Rite Weight Plan, a
As part of its partnership
Saint Alphonsus is a 387- step-by-step online weight- with Lindora Medical Clilicensed bed regional med- loss program available at nics, Rite Aid last year
ical center serving people www.riteaid.com designed began selling Lindorathroughout southwestern to help a dieter lose 10 per- branded diet products
Idaho, eastern Oregon and cent of his or her body across some 400 Rite Aid
northern Nevada.
weight in 10 weeks.
locations
in
Southern
Prior to all of that, Rite Aid
As part of that program, California. The items inalready had signed a deal with customers can visit any Rite clude a selection of protein
Lindora, which features one of Aid store nationwide and bars, shakes, nutritional
www.drugstorenews.com
supplements, weight-loss
program books, instructional DVDs and Lindora’s
“Weight Loss Starter Kit,”
all of which were previously
only available online or
through one of Lindora’s
weight-loss clinics.
Rite Aid has pursued a
more conservative, “waitand-see” strategy in partnering with regional operators, such as Lindora
Health and Sutter Health
in California, as opposed to
acquiring a dedicated retail
clinic operator, such as
Walgreens did with Take
Care Health or CVS Caremark with MinuteClinic.
“On the economics of clinics, for everybody, it’s a difficult economic proposition,”
Sammons said. “Now, it may
get better legs in the future,
but right now it takes a significant number of patient
visits today, and [consistent]
patient visits, for even the
larger clinic operators to
make money,” she said. And
while there is the benefit of a
prescription being written in
the store, which is more likely to go to that store’s pharmacy than anywhere else,
those prescriptions still represent a small percentage of
the overall business, Sammons said.
Drug Store News
Report
Annual
Rebranding
CONTINUED FROM PAGE 1
Rite Aid only just started
reporting Brooks/Eckerd results as they’re broken out
from the core Rite Aid stores
in June. And while that will
translate into an initial drag
on Rite Aid’s comparablestore results in the shortterm—Rite Aid reported
only a slight lift of 1.2 percent in same-store sales
across its entire store base
for the month of July, representing an amalgamation of
a 3.8-percent lift across Rite
Aid’s core stores and a 3.8percent decline across its
acquired stores—it’s expected to be a net positive over
the mid- to long-term.
To
be
sure,
Brooks/Eckerd
same-store
sales results should show
some pretty bold improvement as Rite Aid’s results
today are compared against a number of year-
Drug Store News
ago factors, such as the
transition from the Jean
Coutu Group’s promotional strategy, and before
that JCPenney’s, to Rite
Aid’s.
“Brooks/Eckerd
still faces a tough comparison in June against ‘hot’
promotions implemented
by prior management
[that were] not ended
until mid-July,” noted
Meredith Adler, Lehman
Brothers analyst.
About the time those
aggressive
promotions
ended, Rite Aid moved to
a single advertising circular—which consequently,
was
before
the
Brooks/Eckerd stores had
the full complement of
Rite Aid merchandise, a
fact that limited Rite Aid’s
promotional capabilities
for almost two quarters.
That transition from a
Brooks/Eckerd product mix
to Rite Aid’s planogram,
CONTINUED ON PAGE 6
Source: Rite Aid
Refinancing
C
1
ONTINUED FROM PAGE
shareholders earlier this year,
describing the tough economic
climate in which Rite Aid was
operating in at the time.“More
highly leveraged companies
like ours became unpopular
with investors despite the fact
that we already had the financing we needed,” she said.
Rite Aid is still projecting
EBITDA of between $1 bil-
www.drugstorenews.com
lion and $1.1 billion for fiscal
2009, and has proved it can
control expenses in the midst
of a turnaround.
The refinancing includes the
issuance of a new $350 million
senior secured term loan due
2014 and $470 million of new
10.375 percent senior secured
notes due 2016. Rite Aid used
the financing to help tender
the company’s 8.125 percent
senior secured notes due 2010,
9.25 percent senior notes due
2013 and 7.5 percent senior
secured notes due 2015.
“The amendments eliminate
substantially all covenants that
restricted borrowings under
the company’s $1.6 billion senior secured credit facility,”
noted Bill Dreher, Jr., an analyst
with Deutsche Bank.
The month prior, Rite Aid
issued $158 million of 8.5
percent convertible notes due
2015 to refinance 6.125 percent senior notes due 2008.
September 2008 • 5
Report
Annual
Post-Eckerd
C
1
ONTINUED FROM PAGE
ed comparable sales results,
the fact of the matter is that
Rite Aid has a lot of other factors pulling in its favor. For
example, the performance of
Brooks/Eckerd stores today
are being compared against
the heavy promotional periods a year ago and later the
disruptive conversion of the
Brooks and Eckerd stores to
Rite Aid. That should provide
a boost to Brooks/Eckerd
comp numbers going forward, as Rite Aid works on
Rebranding
5
C
ONTINUED FROM PAGE
another factor that will be
cycled through this fall, was
also more disruptive to sales
than Rite Aid executives had
initially anticipated. As Rite
Aid assumed control of the
Brook/Eckerd stores last
year, they took on a front-end
6 • September 2008
ramping up performance in
those stores to keep any
momentum moving forward.
“They were very promotional last year … and that
continued into the February
timeframe,” Mary Sammons, Rite Aid chairman,
president and chief executive officer, told analysts late
last year. “[There were] a
whole lot of consumables
in the ads and a lot of, what
I’d call cherry-picker pricing, and that we did not
repeat in our ads [going
forward].”
“If you go back and look
at the numbers that CVS
gave after they bought their
Eckerd stores, they had, at
certain points, 20 percent
comps in the front end.
We’re not expecting anything like that, if nothing
else the economy is certainly slower,” Adler said. “But
we do think they can
achieve, by their standards,
very strong comps.”
Rite Aid’s current promotional strategy is more in tune
with today’s discretionarycash-challenged consumer.
“Our promotion plan going
forward will continue to deliv-
er good value to attract a more
cost-conscience customer but
keep markdowns and margins in better balance at the
same time,” Sammons recently told analysts.
Though a drooping economy may represent somewhat
of a drag on that positive
comp story, it’s also an equalizing factor in that Rite Aid
isn’t the only retailer having
to account for the fact that
customers just don’t have as
many discretionary dollars as
they did a year ago. “It was a
challenging first quarter as
the economic climate contin-
ued to impact most retailers
with rising unemployment
and higher food and fuel
costs,” Sammons told analysts during a conference call.
“Despite these headwinds,
our business in the pharmacy
continued to improve as we
increased pharmacy samestore sales, filled more prescriptions and increased
pharmacy gross margin rate.
Front-end same-store sales
also increased, and importantly, sales trends in the
acquired
Brooks/Eckerd
stores continued moving in a
positive direction.”
operation that had been on
the decline during the nine
months it took from acquisition-announcement to acquisition-completion, in part
because of the number of outof-stocks on store shelves.
To date, Rite Aid has completed more than 70 percent of
its Brooks/Eckerd remodels,
with the final remodel expect-
ed to be completed just as the
chain begins rolling out its
Christmas-season
planograms. “As you you
would expect, front-end sales
are improving more quickly
[in the remodeled Brooks/Eckerds], and we’ve cut the
rate of decline in half with
strong growth in core drug
store categories like OTC and
vitamins, which include high
margin Rite Aid brands,”
Mary Sammons, Rite Aid
chairman, president and chief
executive officer told analysts.
And while that sales-disruptive transformation from
Brooks/Eckerd product mix
to Rite Aid’s planogram
won’t be entirely cycled
through until October 2009, it
should spark a significant
increase in private label penetration. Rite Aid enjoyed a
12.9 percent penetration of
store brand products through
fiscal 2008. Meanwhile, the
acquired stores private brand
penetration had reached 11.5
percent by May 2008, which
was earlier than had been
anticipated by Rite Aid.
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