Update: Rite Aid - Positive Direction Continues

Aug. 2.14 | About: Rite Aid (RAD)

Summary

July same store sales increased 4.6% y/y driven by pharmacy sales increasing 6%.

This prodigious growth cements my opinion of Rite Aid turning around its business.

In my previous article, I discussed the tailwinds that will allow Rite Aid to grow and become more profitable, especially due to pharmacy sales rising.

Rite Aid (NYSE:RAD) recently released its July sales figures. The same store sales growth reported was compelling, with a 4.6% y/y increase. Exceptional growth was derived from pharmacy sales with a 6% expansion, even when including a 2.03% negative impact from new generic introductions. Moreover, front-end same store sales were also positive, increasing 1.5% y/y. During the first quarter, same store sales increased 3.1% y/y and grew 3.9% y/y during June. With these accelerating growth figures reported, Rite Aid's novel initiatives are clearly working.

The positive implications of the Affordable Care Act are apparent. Providing Americans with insurance that was previously unaffordable will allow for tremendous growth in pharmacy store sales. Furthermore, RAD is positioning itself to grow its market share within this expanding industry. Its Health Alliance Initiative, Wellness 65+ program, store remodels, and integration of RediClinics will allow RAD to take market share from industry giants, Wallgreen (WAG) and CVS (NYSE:CVS).

In my previous article, "Rite Aid - Take Advantage of A Myopic Market," I opined that RAD was positioned to benefit from healthcare legislative changes and rollouts of new initiatives. The top-line growth is evident, and the bottom line will improve shortly as well. The Mckesson Agreement will provide RAD with improving margins and a more favorable working capital arrangement, so more of this increased revenue will flow into profit in the coming quarters. RAD is a prudent long-term investment at this undervalued level.

Disclosure: The author is long RAD. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.