Prescription for Rite Aid lies in expanding back bench

CAMP HILL, Pa. —Beginning with its September monthly results, Rite Aid will no longer break out its Brooks/Eckerd operations separately, Rite Aid executives announced during its second-quarter conference call held late last month. It’s been more than a year since Brooks/Eckerd has been folded into overall Rite Aid operations, and there is no longer a need to differentiate between the two, noted Frank Vitrano, Rite Aid senior EVP, CFO and chief administrative officer. “We do not have internal initiatives that are acquired store specific. The business initiatives are centered around segmentation and other projects,” he added.

“There isn’t anything particular about Brooks-Eckerd that I could point you to that says it should be underperforming at this point,” John Standley, president and COO, told analysts late September. “When we go through it, they are just isolated kind of store-by-store instances that we have to deal with as part of our underperforming store initiative.”

For its second quarter fiscal 2010, ended Aug. 29, Rite Aid core stores posted a 0.6% decline in overall comp-store sales, reflecting a 4.9% decline across the front-end balanced by a 2% lift in pharmacy sales. At the former Brooks/Eckerd stores, same-store sales were down 2.3%, with front-end falling 4.7% and pharmacy decreasing 1.4%.

It’s a factor that could lead to a degree of uncertainty among analysts—as they will no longer be afforded a crystal-clear picture of what once was the Brooks/Eckerd chain.

But the adjustment may prove to be a boost to Rite Aid’s perceived performance in the long term, however, because any of those continued-but-slow improvements across the Brooks/Eckerd base now will be folded into Rite Aid’s overall results.

The prescription for success at Rite Aid continues to be tied to its back bench, especially as it increases pharmacy traffic that will help the chain right its front-end sales comps.

Mary Sammons, Rite Aid chairman and CEO, noted that prescription metrics had improved through September, whether measured by prescriptions dispensed (140 basis point improvement across comparable stores), sales or customer satisfaction scores.

To help focus on improving pharmacy metrics, Rite Aid last month made a number of moves across its pharmacy team, including the promotion of Robert Thompson to the position of EVP pharmacy. “[Thompson] has a unique background that combines extensive experience in retail pharmacy and store operations with healthcare business development,” Standley said.

One of Rite Aid’s significant contributors to pharmacy performance is the chain’s Rx Savings Card, now boasting more than 3.5 million members (up 34.6% in the past three months). The discount card has played a significant role in helping to grow Rite Aid’s prescription count in comparable stores by 1.4% for the quarter, Standley noted.

The company is piloting a loyalty card program that emphasizes pharmacy for a planned launch next year. The hope is that the new pharmacy loyalty card will drive significant growth across both the front-end and back bench at Rite Aid.

The company hopes to further improve pharmacy performance through increased prescription-file buys in the second half of the year. “This is a positive, since file buys generate a high return, especially given the amount of excess capacity at many Rite Aid pharmacies,” noted Meredith Adler, Barclays Capital analyst, in a research note.

Rite Aid recently expanded its retail clinic program, which is similarly a proven driver of increased prescription counts. Rite Aid and Atlantic General Hospital and Health System last month announced the planned opening of three Atlantic ImmediCare clinics—two in Maryland and one in Delaware—which are slated to open this fall.

“The Atlantic ImmediCare clinics will complement the medication counseling and care provided by our pharmacists, and provide the convenience of high-quality, affordable healthcare services,” Thompson said. The new clinic deal brings Rite Aid’s total of convenient care clinics to 18 across five partners.

Earlier this year, Rite Aid updated Drug Store News on its expansion of Rite Care, a reimbursed medication therapy management model pioneered four years ago in the Pittsburgh market. Rite Aid since has expanded those program capabilities across 2,200 Rite Aid stores in virtually all of the markets it serves through a specially trained MTM workforce comprised of more than 650 pharmacists.

Though the future for Rite Aid looks more sunny, the chain lowered its outlook for fiscal 2010 by some 12%, thanks to a number of confounding factors: reductions in inventory and labor that may have cut too deep, a recession economy that’s yet to materially recover and increased generic utilization, which on the surface reduces top-line sales significantly, even as more revenue from the higher-margin pharmaceuticals drops to the bottom line.