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Rite Aid reports first profit in five years

CAMP HILL, Pa. — Rite Aid beat analyst expectations in third quarter 2013 as the generic wave and retention of Express Scripts customers helped drive better-than-expected adjusted EBIDTA and produced the company's first profitable quarter in five years.

"I am proud that we have achieved this significant milestone by putting our customers first and challenging ourselves to better serve them," Rite Aid president, chairman and CEO John Standley said in a conference call with Wall Street analysts Thursday morning.

The company reported sales of $6.2 billion, a 1.2% decrease compared with third quarter 2012's $6.3 billion due to the introduction of new generics and store closings. Same-store sales decreased by 1.5%, as a 2.7% decrease in pharmacy comps due to new generic introductions offset a 1.1% increase in front-end comps, though same-store prescriptions filled increased by 3.6%, including the addition of new prescriptions from the dispute between Walgreens and Express Scripts. At the same time, the company posted a profit of $61.9 million compared with third quarter 2012's loss of $52 million. The chain's last profitable quarter was first quarter 2008, reported in June 2007.

Even though the Walgreens-ESI dispute has been resolved, Rite Aid has managed to retain the "vast majority" of those who moved over, CFO and chief administrative officer Frank Vitrano said during the call.

One reason is that the company has aggressively sought to enroll those customers in the Wellness+ loyalty card program, which had approximately 25 million active members during the quarter, a 5% increase over the same period last year, of whom gold and silver members are the most active. Members accounted for 76% of front-end sales, compared with 72% in third quarter 2012, as well as 67% of prescriptions filled, compared with 66% during the same period last year, leading COO Ken Martindale to call it the "richest and most rewarding program" in the industry. "I think there's still an opportunity out there to continue to educate people who don't understand the program," Martindale said, adding that research the company has done suggests that when customers do understand it, it changes their front-end shopping habits for the better and helps retain them.

Another contributor to front-end sales has been the Wellness store format. The chain currently has 687 stores converted to the format and expects to have 780 converted by the end of fiscal year 2013; it also has trained nearly 1,100 Wellness Ambassadors. This has helped contribute to the 300 basis points lift in front-end sales at the Wellness stores compared with non-Wellness stores. In addition, the company plans to expand the updated Wellness store format, currently showcased in the Lemoyne, Pa., store featured in a recent Drug Store News video.

Immunizations have seen a strong boost as well, with 1.8 million immunizations delivered to date and plans to administer 2 million this year, thanks to a stronger flu season. "We're using this opportunity to educate patients about immunizations and other clinical services," Standley said.

The company's adjusted EBITDA beat analyst projections, coming in at $277.2 million. Guggenheim Securities had projected adjusted EBITDA of $247.3 million. "We believe the generic wave will power above-trend near-term operating momentum and we would remain buyers of the stock," Guggenheim analyst John Heinbockel wrote.

Wall Street reacted positively as well, as Rite Aid's stock opened at $1.17 per share and jumped to $1.21 before settling at $1.17 around 10 a.m. EST, having closed at $1.04 per share on Wednesday.

For an in-depth look at Rite Aid’s turnaround check out Retailing Today sister publication Drug Store News’ recent issue, click here.

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