Rite Aid Squarely Focused on Pharmacy Business
During its April 14 earnings call, Rite Aid Corp. revealed that its growth strategy is focused on the business of pharmacy.
“One in seven Americans live more than 5 miles from the nearest pharmacy,” said Heyward Donigan, president and CEO. “Twenty-nine percent of Americans failed to take their medications as prescribed, because of the cost. And underutilization of medications drives $500 billion-plus a year in avoidable medical costs. We believe that supporting these unmet needs presents tremendous opportunity for us, and the price of entry for us is very low.”
As a result, Rite Aid is planning to extend its pharmacy footprint to improve access in underserved communities. “Later this year, we will launch small-format stores with a focus on pharmacy, strategically located in markets where access to pharmacy is limited,” said Donigan. “We expect to achieve an [internal rate of return] of over 25% on these stores.” The timing for opening these smaller formats is yet to be determined.
The news of smaller formats comes after the company has identified 145 underperforming store locations that it has decided to close. Rite Aid initially revealed in December 2021 that it was implementing a store closure program to reduce costs and drive improved profitability. Most of the stores are scheduled to close by the end of June.
Meanwhile, for its fourth quarter, which ended Feb. 26, the company reported net loss from continuing operations of $389.1 million, or $7.18 loss per share, compared with last year’s fourth quarter net loss of $18.5 million, or 34 cents per share. Adjusted net loss from continuing operations was $88.6 million, or $1.63 loss per share, and adjusted EBITDA from continuing operations was $106.1 million, or 1.8% of revenues.
Revenues from continuing operations increased 2.5% and 2.2% for the 13- and 52- week periods ended Feb. 26, respectively, compared with the prior year, driven by growth in the retail pharmacy segment, partly offset by a decline in the pharmacy services segment.
Retail pharmacy segment revenues from continuing operations increased 7.8% over the prior-year quarter, driven by an increase in same-store sales. Same-store sales from continuing operations for the fourth quarter increased 8.3% over the prior-year period, consisting of a 10.7% increase in pharmacy sales and a 2.7% increase in front end sales. Front end same-store sales, excluding cigarettes and tobacco products, increased 3.2%.
For the fiscal year, retail pharmacy segment revenues from continuing operations increased 6.9% over the prior year.
Retail pharmacy segment adjusted EBITDA from continuing operations was $102.4 million, or 2.3% of revenues, for the fourth quarter, compared with last year’s $6.0 million, or 0.2% of revenues. For the fiscal year, retail pharmacy segment adjusted EBITDA from continuing operations was $392.6 million, or 2.2% of revenues, compared with $279.9 million, or 1.7% of revenues, for the prior year. The rise was due to increased gross profit, partly offset by an increase in selling, general and administrative expenses.
“We exceeded our 2022 plan amid continuing challenges of the COVID-19 pandemic. As we look forward to the year ahead, we are ready and energized to compete in a new post-pandemic normal,” said Donigan. “We demonstrated the important role that pharmacists play in the everyday health of our customers and are well positioned to grow in a trillion-dollar pharmacy market through our continued leadership as a full-service pharmacy company.”
Looking forward, Rite Aid expects total revenues to be between $23.1 billion and $23.5 billion in fiscal 2023. The company will focus on investments in digital capabilities, technology, prescription file purchases, distribution center automation and store remodels.
“With our focus on delivering a heightened digital experience, we expect to grow riteaid.com e-commerce sales and ... our Buy Online, Pick Up in Store offerings,” said Donigan. “Revenues from our third-party delivery and marketplace channels grew by over 50% in fiscal '22, and we expect similar growth rates in fiscal 2023.”
Also aiding fiscal 2023 will be the company’s new loyalty rewards program, Rite Aid Rewards. Replacing its wellness+ Rewards program, Rite Aid Rewards is a digital-first program that allows customers to earn points for eligible purchases of in-store and online products as well as prescription pickup.
Donigan also revealed that Rite Aid will roll out a newly designed own-brand portfolio of products and scale its new beauty assortment, which showed 10% year-over-year growth in pilot locations. Additionally, the company plans to grow its wholly owned subsidiary Elixir.
With more than 2,400 retail pharmacy locations across 17 states, Camp Hill, Pa.-based Rite Aid is No. 19 on The PG 100, Progressive Grocer’s 2021 list of the top food and consumables retailers in North America.
