CEO outlines vision for 'the new Rite Aid'
Rite Aid CEO John Standley detailed the strategic priorities of "the new Rite Aid" at the annual J. P. Morgan Healthcare Conference in San Francisco.
Standley described the drug chain's six key priorities as:
- Building the management team
- Redefining and enhancing customer and patient experience
- Engaging with payor partners to create a sustainable business model
- Evaluating pharmacy purchasing options to ensure a competitive drug cost
- Streamlining operations
- Growing the pharmacy benefits manager, EnvisionRxOptions
According to The Motley Fool, Kermit Crawford, who joined Rite Aid as COO in September after a long career with Walgreens, gave an encouraging update about Rite Aid's Wellness+ customer loyalty program. He said that the loyalty program had 20.7 million active members as of the end of 2017.
Crawford noted that 79% of the company's front-end sales and 57% of pharmacy sales stemmed from loyalty program members last year. That's good news for Rite Aid, since the average basket size for loyalty program customers is 7.1% higher than that of customers who aren't members of the program.
In the third quarter the drug chain reported that revenue dropped 5.6% in the third quarter ended Dec. 2 to $5.35 billion, compared with $5.67 billion a year earlier.
Same-store sales from continuing operations fell 2.5% in the quarter from the prior year.
Excluding items such as discontinued operations and other expenses, Rite Aid earned $1.6 million, or zero cents a share.
"We have a strong foundation from which to build a winning strategy, specifically as it relates to our talent, our retail clinical programs and our wellness store format," said Standley. "We also have tremendous momentum in our retail clinical programs. In terms of the big picture, we can execute companywide on delivering low cost, high quality health and wellness services beyond filling prescriptions, which gives us a strong foundation for building additional clinical service offerings going forward."
The company had a profit of $81 million in the third quarter, or 8 cents a share, up from $15 million, or 1 cent a share, a year earlier.
The mixed results for Rite Aid come at a time when CVS Health is acquiring Aetna for $69 billion in a deal that would combine the drug chain with one of the biggest health insurers in the United States and has the potential to reshape the nation's health care industry.
Retail pharmacy-segment revenue at Rite Aid decreased 3% to $4 billion, primarily on a decrease in same-store sales and reimbursement rates. Revenue in its pharmacy-services segment fell 12% to $1.4 billion on lower participation in Medicare Part D regions and a decline in its commercial business.
Standley said the retailer's wellness store format continues to drive innovation through enhanced layout and design, a stronger emphasis on health and wellness products and services, and enhancements that make key categories much easier to shop. These stores continued to outperform the rest of the chain and going forward, wellness stores will account for nearly two-thirds of our overall retail footprint.
"We will continue to enhance our product selection, traffic flow, and services based upon learnings and a better understanding of our local customer needs. We're excited to be in a position to further leverage this popular store format in delivering an even better customer experience," he said. "The benefits of the WBA transaction, the ability and potential of our team, and our portfolio of successful initiatives, I believe we have a strong foundation from which to build the new Rite Aid and are well on our way to identifying the steps we must take to create a winning strategy in each market that enhances our customer experience and builds a winning value proposition for our payers and key stakeholders."
Under their agreement, Walgreens will purchase Rite Aid 1,932 stores, three distribution centers and other inventory from Rite Aid for about $4.38 billion in cash. On Wednesday, Rite Aid said it had transferred 357 stores to Walgreens and received about $715 million, which Rite Aid has used to pay down debt.
In the third quarter, the company opened 1 store, relocated 9 stores, remodeled 20 stores and expanded 1 store, bringing the total number of wellness stores chainwide to 2,505.
Rite Aid now has 4,404 stores in 31 states and the District of Columbia.