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Rite Aid (NYSE:RAD) announced on June 6,2013 its May sales results ending June 1,2013. Its monthly and quarterly figures seem at first glance simple enough to understand. The numbers, however, do require a closer look to more fully understand. Remember these are unaudited preliminary numbers.

The Numbers

  • Company wide total sales were down overall -1.5% monthly ($2.423 billion from $2.459B) and -2.8% quarterly ($6.264B from $6.441B) on year over year basis. Same Store Total Sales also dropped 1.5% monthly and 2.5 % quarterly.

  • Pharmacy sales dropped 2.7% on the monthly (5 weeks) and 3.8% on quarterly (13 weeks) vs. prior year same store basis.

  • Prescription counts were down 0.3% on the monthly while the quarterly decline was 0.1%.

  • Front end sales increased 0.8% monthly over 0.4% quarterly. There was a rise in front sales distribution to 33% of total sales on monthly versus quarterly 32.5% of total sales for the front of the store.

Total Sales Ending June 1/13

Monthly 5 weeks%ChangeQuarterly 13 weeks%ChangeAssessment
Current Period$2.423B-1.50%$ 6.264B-2.80%Slowing Decline
Total Sales Prior Year$2.459B $ 6.441B
Same Store SalesLast Month% TotalQuarterly% TotalAssessment
Total Sales-1.5%100%-2.5%100%Slowing Decline
Rx Sales-2.7%67%-3.8%67.5%Slowing Decline
Rx Counts-0.3% -0.1% Growing Decline
Front Sales+0.8%33%+0.4%32.5%Accelerating Growth

Chart Populated from Report

A Closer Look

Overall same store sales continue to decline. The rate of decline is slowing on month over month relative to quarter on a yearly basis.

Pharmacy (Rx) sales also show a slowing decline in sales. This is consistent with overall sales as this represents the bulk (67%) of all sales.

As reported, pharmacy sales were impacted from more new generic introductions. These are at lower prices and lower cost of goods sold. Even though this means less total sales and dollars transferred to the bottom line, it is a better percent gross profit return. This may prove to be a positive to RAD over time.

These sales are also of lower cost. The inventory held at cost will fall. Since this is a major asset, reducing it will lower the cost of borrowing to service it and will be a better return on funds used. In view of Rite Aid's high debt load and considering the size of pharmacy sales and inventory, this becomes significant with time. If the inventory is managed properly with an optimized turnover rate as well, it will result in improved returns.

The rate of decline in prescription counts seems opposite to sales with prescription counts falling faster than Rx sales. While these are again only preliminary figures, this rate is not consistent with overall figures. It could be a reasonable occurrence, however. Larger pharmacy sales per unit count could be implied and this should be explored.

Rite Aid along with others had gained prescriptions sales as the result of dispute between Walgreen (NYSE:WAG) and Express Scripts (NASDAQ:ESRX) which settled.

Generally, it would be also reasonable to expect that prescription customers would return to their former pharmacy when, once again it began accepting their insurance. To most this is a value proposition, i.e. (I now have no longer to pay upfront to a store I used to go to that is close to home, etc.) It would also be expected that some patients would also go back to a health professional pharmacist with whom they had a trusting relationship and other staff more familiar to them.

More of this type of decline could occur based on time to use and renew a prescription or to see a prescriber and competitive recapture. What is surprising is that the counts did not impact more on prescription sales as would be expected.

Front sales show an accelerating increase. This may be indicating programs and other changes (facilitated experience, loyalty, health and corporate brands focus) are starting to work. Since not all stores have been revamped, this is very positive.

Summary

  • This is still a highly leveraged company with a large debt and negative shareholder equity that seems to be trying to address its issues with some success in front sales and a slowing decline in pharmacy sales. Much more will be needed and lots of hard work ahead.

  • The programs seem to be starting gradually to work and getting them back on track. This seems very encouraging.

  • Investors may wish begin to consider this based their time horizon and always in balance.

Source: Rite Aid Sales - A Closer Look