Rite Aid posts strong Q4, FY2012

CAMP HILL, Pa. — Despite running fewer stores, Rite Aid grew its sales and narrowed its losses during the fourth quarter and fiscal year 2012, thanks to a boost in its loyalty card program membership, a longer fiscal year and the continuing dispute between Walgreens and Express Scripts.



Much of the 4,667-store chain's continued success was owed to the Wellness+ loyalty card program. The number of members of the program grew to 52 million from 36 million at the end of fiscal year 2011, including a 16% growth in active members, to 25 million. Members accounted for 74% of front-end sales and 68% of prescriptions filled, with increases in the number of gold and silver members, and members overall showing higher retention rates in the pharmacy than nonmembers.



Discussing improvements in the program's numbers in a conference call with investors Thursday morning, president and CEO John Standley said the company was "committed to making it even better while finding more ways to deliver more value to our most loyal customers."



These include plans to expand delivery of targeted offers to members in fiscal year 2013, Standley said. To an extent, the company already has done this with Wellness+ for Diabetes, which it launched in September 2011, as well as other enhancements to the program, such as "wellness rewards" for members that include magazine subscriptions and gym memberships and Load2Card, which allows users to download coupons to their cards.



Another initiative that saw expansion was the Wellness store format, with 280 stores converted to the new format at the end of the quarter and plans to convert another 500 in fiscal year 2013. Standley said most of the stores in the chain — between two-thirds and three-quarters — would be converted, with an emphasis on the better-performing "top guns."



Standley also brushed off concerns about a congressional inquiry into the stores Wellness Ambassadors, specially trained staff with iPads who answer customers' questions about dietary supplements and over-the-counter medications and directing customers to the pharmacist for further information. The inquiry centered on allegations by a political advocacy group that the Wellness Ambassadors were making health claims about OTC products not verified by the Food and Drug Administration, though the company already has hired 400 of them and did not expect their role to change.



In terms of the Wellness stores' performance, the company was starting to see a "positive impact" on front-end sales, though pharmacy sales continued to lag, though Standley said this was expected, and the company hoped to see comps at 3% above the rest of the chain in the stores; most of the $250,000 invested in each store tended to focus on the front end. "We're making some solid progress there," Standley said.



Meanwhile, the company saw improvements in the back end as well. The number of flu immunizations doubled to 1.5 million, while the number of same-store prescriptions filled in fourth quarter increased by 2.4% over fourth quarter 2011, a number that included a benefit from the contractual dispute between Express Scripts and Walgreens. Increased interest from some outside parties in narrow networks was another consequence of the Walgreens-ESI tiff. "I think we're seeing more inquiries about narrow networks, but we also hear from consultants that not many clients are interested in it," Standley said, saying that the concept was "a little nerve-wracking."



Despite speculation earlier in the year that Rite Aid would become an acquisition target for Walgreens, the subject didn't come up during the call, and Guggenheim Securities analyst John Heinbockel wrote in a report that the prospects of an acquisition were "unlikely."



All in all, the company posted a strong quarter and fiscal year. Sales for fourth quarter 2012 were $7.1 billion, while losses were $161.3 million, with a 3% increase in comps. This compared with fourth quarter 2011 sales of $6.5 billion and losses of $205.7 million, with sales receiving a 10.7% boost, thanks to the additional week in fiscal year 2012.



Fiscal year 2012 sales were $26.1 billion, with losses of $368.6 million and a 2% increase in comps. This compared with sales of $25.2 billion in fiscal year 2011 and losses of $555.4 million.



For 2013, the company expects sales of between $25.4 billion and $25.8 billion, with comps remaining flat or increasing by up to 1.5% and losses of between $103 million and $267 million. During the year, the company plans to work expand clinical service offerings in the pharmacy to improve medication adherence and care for diabetes patients. On Tuesday, it announced that it would start offering Rite Care Prescription Advisor reports, which give patients medication adherence scores in the form of easy-to-read line graphs and are based on consultations with pharmacists.