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Wellness+ loyalty program, Wellness format stores continue to lift Rite Aid performance

CAMP HILL, Pa. — Rite Aid maintained its same-store sales momentum, posting gains across front-end and pharmacy comparable sales for the sixth consecutive quarter: Overall same-store sales were up 2.5%, reflecting a 2.7% increase across the front-end and a 2.4% uptick across pharmacy, for the first quarter ended June 2. Comparable prescriptions filled were up 3%, much of that from prescriptions coming out of the Walgreens-Express Scripts dispute (patients that Rite Aid plans on keeping), but that isn't the only reason Rite Aid's pharmacy business is on the rise.

Rite Aid's Rite Care Prescription Advisor, an opt-in program that illustrates for patients what their prescription-drug adherence looks like, now boasts 300,000 patients. While patients opt-in to review those adherence results for themselves, Rite Aid pharmacists also are utilizing those reports in their one-on-one consultations with patients. "We believe that one-on-one interaction with the pharmacist is an important way [to improve compliance]," noted John Standley, Rite Aid chairman, president and CEO, to Wall Street analysts Thursday morning. That improved compliance benefits Rite Aid through both an increase in prescriptions filled over the course of a year, as well as the increased in personalized interactions between Rite Aid pharmacist and Rite Aid patient.

Rite Aid's loyalty program, Wellness+, continues to be a strong backwind helping to drive Rite Aid's results. Active members — defined as those that have used their Wellness+ card at least twice in the past 26 weeks — totaled 25 million for the first quarter, up 11% from the year-ago period. (The total number of Wellness+ members was 52 million, according to fourth quarter 2011 results.) Three-out-of-4 front-end transactions represent a Wellness+ member and 69% of pharmacy transactions go to Wellness+ members. That compares with 67% and 62%, respectively, in the year-ago period. "Wellness+ continues to be a game-changer," Standley said.

It's that Wellness+ program that will help make any of those transitory Walgreens prescriptions — which contributed between $15 million and $20 million in pharmacy sales for the quarter — more sticky. Standley told analysts Thursday morning that Wellness+ penetration across those newly-switched-from-Walgreens patients is on par with the broader Wellness+ numbers, meaning more than two-thirds of those new customers who now are filling their prescriptions at Rite Aid have signed up to Rite Aid's loyalty program.

Rite Aid's Wellness store formats are likewise doing well and still outperforming Rite Aid's core stores. Rite Aid operated 423 Wellness stores through quarter's end and the Pennsylvania-based pharmacy operator plans to have 780 Wellness stores, or some 15% of its store base, up and running by year's end. To date Rite Aid has trained as many as 600 Wellness Ambassadors to support their active engagement with Rite Aid customers in the aisles.

For the quarter, Rite Aid reported revenues of $6.5 billion (up 1.2%), with a net loss of $28.1 million, or 3 cents per diluted share, and adjusted EBITDA of $274.2 million, or 4.2% of revenues. Results benefited from continued growth in same store sales and an improvement in gross margin.

Pharmacy comp sales, though positive, included an approximate 326 basis point negative impact from new generic introductions. Many pharmacy operators, including Rite Aid, have indicated that the negative impact on same-store pharmacy sales out of the 2012 generic wave only will become greater as the year progresses.

Prescription sales accounted for 68.4% of total drug store sales, and third party prescription revenue was 96.6% of pharmacy sales.

In the first quarter, the company relocated two stores, remodeled 143 stores and closed 15 stores. Stores in operation at the end of the first quarter totaled 4,652.

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