Tags: Rite | Aid | growth | RAD

Rite Aid Growth Picture is Cloudy

By    |   Thursday, 12 Jan 2012 06:48 AM

The third-largest U.S. drug store chain, Rite Aid (RAD), is travelling a rocky path for the foreseeable future. It has logged quarterly losses since 2007 and the growth picture is cloudy. Not surprisingly, Rite Aid’s stock price is under $2.

Yet the Pennsylvania pharmacy company is rethinking its footprint. Its 4,700 stores are mainly near fast-growing metropolitan areas. Rite Aid has sharpened its portfolio by shutting hundreds of poorly performing stores. The chain also has placed more than 2,000 GNC (GNC) supplements stores within its own Rite Aid stores.

Rite Aid’s main asset, though, is its 2,900 private label brands, which boost sales. Its strong, growing Wellness loyalty program has 47 million customers. Rite Aid is expected to ratchet up its pharmacy sales further by adding more generic drugs. Pharmacy sales accounted for 68 percent of Rite Aid’s total sales in fiscal 2011; 32 percent came from personal care items, over-the-counter medications and other sundries.

So why is Rite Aid bogged down? It labored under $6 billion in debt in fiscal 2011. Competitors like Wal-Mart can swoop down to undercut Rite Aid’s prices, dragging down profitability.

Lately, Rite Aid has narrowed its losses, though. Its third-quarter 2012 net loss was 6 cents per share, versus 9 cents a year also. Revenues increased 1.8 percent to $6.3 billion.

Tougher times

Of the seven analysts followed by Thomson/First Call, one has a strong buy recommendation and one has a buy, with four holds and one underperform.

S&P analysts agree. They have a hold rating, citing Rite Aid’s weak same-store sales and a heavy debt load.

The company reports next on March 15.

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