Rite Aid gets confidence boost in uncertain times

You better believe these are tough times in America. People are scared.

The financial crisis that brought Lehman Brothers and AIG to its knees last month is being called the biggest financial meltdown since the The Great Depression. TV news pundits tell consumers what it would mean to live in a strange new world where banks can’t lend money to each other: no more loans to buy homes, cars or send kids to college.

As senior editor Michael Johnsen uncovered for the story that appears on page 1, the first in a two-part special Drugs Store News report on the impact the economy on retail pharmacy, the average U.S. household will lose between $3,000 and $4,500 in buying power this year due to the rise in food and gas prices.

That’s if you still have a job; the nation’s unemployment rate of 6.1 percent in August was the highest it has been in more than five years.

If the price of gas wasn’t bad enough, hurricanes Ike and Gustav created fuel shortages so severe that gas stations ran dry in cities throughout the Southeast in the final week of September. So for several days, many consumers couldn’t even drive to the store to buy anything at all if they wanted to, much less whether they could afford to or not.

Now is a time when any retail pharmacy executive might want to pay a visit to the antacid aisle. According to a recent survey of chief financial officers at the nation’s leading retail companies, almost two-thirds (64 percent) said that sales were down or flat during the first half of 2008 versus 2007; 65 percent said that same-store sales were down (44 percent) or flat (21 percent) for the first half of the year. The study, conducted by the consulting firm BDO Seidman, also found that optimism remains low for the remainder of the year, with only about 36 percent expecting comps to improve in the second half of 2008.

So I wasn’t entirely surprised when Drug Store News got a few phone calls from vendors the day that Rite Aid announced that it was bringing its former chief financial officer John Standley back into the fold full-time. Rite Aid’s second-quarter numbers weren’t what many expected, and the company was forced to adjust its projections for the remainder of the year.

Times are tough, people are worried, and that makes sense. But I think the changes that Rite Aid made also make a lot of sense. I am not the only one who thinks so. Credit Suisse analyst Ed Kelly described the management changes as “a large positive,” for the company. That’s important, because for Rite Aid it is much more critical right now what Wall Street thinks than what I think.

This is not a critique of Rob Easley, Kevin Twomey or Pierre Legualt. But Standley, at the tender age of 45, has come to be regarded as something of a wunderkind among retail analysts. Already in his career he has been credited as a key architect of the financial strategy that helped turn Rite Aid around following the accounting scandals and management blunders of the Martin Grass leadership, and for the cleaning up of Pathmark for its sale to A&P. Standley inspires confidence and that is important for Rite Aid right now.