Despite setbacks, the future of Rite Aid looks positive

NEW YORK Judging from Rite Aid’s annual shareholder meeting held here Thursday morning, there’s more going right at Rite Aid these days than there is going wrong.

Rite Aid executives laid out a roadmap for investors as to how the chain has already improved operations and sales in the second half of fiscal year 2009, as well as how the chain will continue to improve in fiscal 2010.

“Rite Aid is in a much stronger financial position than it was just a few months ago,” said Mary Sammons, Rite Aid chairman and CEO.

For example, it’s by no means a lock, but in just four trading days Rite Aid’s stock will have traded above $1 long enough that it will have satisfied the requirements to stay listed on the New York Stock Exchange, Sammons told shareholders at the chain’s annual meeting Thursday morning.

And that’s certainly a marked improvement as Rite Aid never had to resort to the reverse stock split shareholders approved last December.

And within the past year, Rite Aid successfully recruited proven turnaround executives in John Standley, now president and COO, along with Frank Vitrano as CFO and chief administrative officer and Ken Martindale senior EVP merchandising. And in only three quarters, the impact of those recruitments has been felt:

• Pharmacy sales are trending positive and the chain is gaining market share in this tough economy as evidenced by its 2.2% increase in overall script count (“A pretty significant turnaround for us,” Standley said);
• The trend of a quarter-by-quarter increasing SG&A as a percent of sales was reversed, falling below the prior-year percentage by the fourth quarter of fiscal 2009. Similarly, distribution costs as a percentage of sales had dropped significantly by the fourth quarter of the chain’s last fiscal year. Customer satisfaction ratings are actually above historical levels — a 74% approval rating through fiscal 2009, as compared with the pre-Brooks/Eckerd acquisition approval rating of 67% recorded in fiscal 2005;
• The chain also appears likely to successfully renegotiate a September 2010 debt hurdle in the coming months, ahead of schedule. The renegotiated debt, which pushes the majority of that debt out some three years, gives the chain an opportunity to capitalize on its growing prescription base when the economy begins turning around.

And looking forward, Rite Aid has a number initiatives expected to further improve operational efficiency and increase sales. The chain is making significant progress across its segmentation initiative, where stores are being divided into low-volume/high-volume or urban/suburban buckets with labor allotments and merchandising programs catered specifically to those businesses.

The chain will soon implement a new pricing model, in conjunction with that segmentation program, that will increase the amount of point-of-purchase signage throughout the store around Rite Aid’s “Red Hot Specials.”

Standley also noted that Rite Aid’s Rx Savings Card now boasts approximately 2.6 million members. Rite Aid is currently developing a pharmacy loyalty program that will be rolled out in the second-half of fiscal 2010, he added.