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Weak May Comps for Rite Aid

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Drugstore chain retailer, Rite Aid Corporation’s (RAD - Free Report) same-store sales (comps) for the 5 weeks ended Jun 1, 2013 slipped 1.5%. The fall was due to a decline in pharmacy comps, partially offset by improved front-end comps.

Pharmacy comps for May fell 2.7% primarily due to a negative impact of approximately 373 basis points from generic drug introduction and a 0.3% drop in prescription counts. However, the company’s front-end comps rose 0.8%.

Rite Aid reported total drugstore sales of $2.423 billion for the month, with prescription sales constituting 67.0% of it. Third-party prescription sales accounted for 97.0% of pharmacy sales. The company’s drugstore sales for the month fell 1.5% from the year-ago figure of $2.459 billion.

For the 13-week period ended Jun 1, Rite Aid’s comps decreased 2.5% primarily due to a fall of 3.8% in Pharmacy comps, partially offset by an increase of 0.4% at front-end comps. In the said period, total drugstore sales decreased 2.8% to $6.264 billion from $6.441 billion in the comparable period of 2012.

Prescription sales comprised 67.5% of total drugstore sales, with prescription counts dropping 0.1%. Additionally, third-party prescription sales constituted 97.0% of the pharmacy sales.

Rite Aid, which trails Walgreen Co. and CVS Caremark Corp. (CVS - Free Report) in terms of store count, has persistently witnessed a decreasing sales trend over several quarters due to the introduction of lower cost generic (non-brand) drugs. Such non-branded drugs are less expensive in the market but generate higher gross margins for the company.

This is evident from Rite Aid’s performance in fourth-quarter fiscal 2013, when generic medication primarily drove its margin expansion. Going forward, this Zacks Rank #2 (Buy) stock is likely to focus on expanding its portfolio of generic medication, given the growing demand for such drugs.

However, Rite Aid’s generic drug sales could be adversely affected by Wal-Mart Stores Inc.’s (WMT - Free Report) foray into the retail generic drug market. Due to Wal-Mart’s wide array of manufacturers in India, Israel, and the U.S., the mass merchant can offer the particular drugs at a more discounted price compared with the average $10.00 generic drug co-pay.

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