April 10, 2014 / 12:41 PM / 5 years ago

Aging baby boomers, generic launches to drive Rite Aid sales

(Reuters) - Rite Aid Corp (RAD.N), the third-largest U.S. drugstore operator, forecast fiscal 2015 sales above analysts’ estimates as it benefits from the launch of new generic drugs and enrolls more customers in its loyalty programs.

A Rite Aid sign is seen outside one of their stores in New York, April 11, 2013. REUTERS/Shannon Stapleton

Rite Aid’s shares jumped as much as 15.5 percent to their highest in 13 years after the company also reported a higher-than-expected quarterly profit, helped by a 3.5 percent rise in pharmacy sales.

The drugstore chain has been betting on a significant increase in the number of aging baby boomers in the United States and the millions expected to gain healthcare insurance under the Affordable Care Act.

Rite Aid has been remodeling its stores since 2011, calling them Wellness stores, under which it provides clinical services and offers more health food and dietary supplements.

Employees at these stores provide customers with information on over-the-counter medications and help them chart their medical programs based on their symptoms and needs.

The company said it had remodeled 1,215 of its 4,600 stores by the end of the fourth quarter.

Rite Aid also said it had added 1.7 million seniors, the biggest spenders at pharmacies, in its loyalty program for those above 65 years. The program was launched last June.

“Despite a laundry list of headwinds (modest influenza season, difficult winter weather conditions, and promotional front-end environment), Rite Aid was still able to grow EBITDA (in the quarter)...,” Raymond James analyst John Ranson wrote in a note to clients.

Rite Aid said it expected its pharmacy sourcing arrangement with McKesson Corp (MCK.N), launch of new generic drugs in the second half of fiscal 2015 and generic drug price increases to drive sales in the year ending March 2015.

Chief Financial Officer Frank Vitrano said sales in the second half of the fiscal year were expected to be stronger than the first half as generic versions of AstraZeneca PLC’s (AZN.L) acid reflux drug Nexium and Novartis AG’s NOVN.VX blood pressure drug Diovan hit the market.

For drugstore retailers, generic drugs generate lower revenue but higher profit than branded medicines.


Rite Aid said it expects full-year earnings of 31-42 cents per share on sales of $26.0 billion-$26.5 billion.

It forecast same-store sales growth of 2.5-4.5 percent in the year.

Analysts on average were expecting a profit of 35 cents per share on revenue of $25.75 billion, according to Thomson Reuters I/B/E/S.

Adjusted EBITDA rose 4.7 percent to $356.3 million in the quarter.

Rite Aid’s net income fell to $55.4 million, or 6 cents per share, in the fourth quarter ended March 1 from $123.1 million, or 13 cents per share, a year earlier.

Excluding items, Rite Aid earned 10 cents per share.

Revenue rose 2.2 percent to $6.6 billion as pharmacy sales grew 3.5 percent. Total same-store sales rose 2.1 percent.

Analysts on average were expecting a profit of 4 cents per share on revenue of $6.54 billion.

Separately, the company said it acquired Houston-based retail clinics operator, RediClinic, which operates 30 clinics in greater Houston, Austin and San Antonio areas. The company expects to open additional 70 RediClinics clinics over the next 18 to 24 months in Texas.

Rite Aid did not disclose the terms of the deal.

The company’s shares, which have quadrupled in the past year, were up 11.2 percent at $7.12 on the New York Stock Exchange in afternoon trading.

Additional reporting by Siddharth Cavale in Bangalore, Editing by Kirti Pandey

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