Q3 was another tough quarter for Rite Aid. Despite revenue for the quarter being $5.5 billion up versus the same time a year ago, the retailer still had a net loss of $17.3 million from continuing operations. Now focused on its future as a stand-alone entity following the 2018 collapse of its proposed merger with Albertsons, the retailer used its third-quarter earnings call to share progress on several initiatives. It also announced it had hired digital specialist Justin Mennen as senior vice president and chief information officer.

Here are a few key takeaways from the earnings call:

Prioritizing the Pharmacy

With the company still operating at a loss, CEO John Standley spent much of the call assuring the financial community that Rite Aid was making the correct decisions in the pharmacy space, its primary growth driver. Standley kicked off the call by announcing that the retailer had renewed its drug purchasing agreement with McKesson for an additional 10 years. Elsewhere, due to the strong flu season, Rite Aid is on pace to pass its record number of flu shots in one year, and projects further growth in immunizations before the end of the fiscal year on March 2, 2019.

The retailer also saw growth from increased enrollment in Medicare Part D and its PBM EnvisionRxOptions. Over the past year, Rite Aid gained approximately 200,000 patients and had more than 595,000 enrolled Part D members for 2018. Like other drug retailers, Rite Aid will need to focus on strengthening the pharmacy and its position as a care provider, especially now that the front store is struggling.

Front-Store Woes Persist

Rite Aid’s front store continues to be a weak point. While same-stores sales increased 1.6% in the quarter, front-store sales declined 1.5%, with the pharmacy driving growth at 3.1%. Aiming to improve the front store, Rite Aid plans to prioritize health, beauty, vitamins, and consumables as key categories. In beauty, the retailer became the first drugstore chain to offer the small natural brand Kokie Cosmetics, while also expanding its relationship with e.l.f. cosmetics and Cake Beauty. With both CVS and Walgreens also focused on enhancing their beauty experience, Rite Aid will need to truly differentiate itself against competitors in the channel.

In consumables, Rite Aid recently added over 150 better-for-you products under its private label brands and, following a successful trial, plans to introduce its new grocery concept to additional stores. In the future, suppliers will need to consider how their products fit into new merchandising initiatives centered on health and a revamped grocery assortment.

With improving the in-store experience a core focus, the retailer has started improving its omnichannel capabilities to offer more personalized promotions for its shoppers. Rite Aid has lowered its promotional mix from 85% mass vehicles (primarily circulars) to approximately 50%, investing in its CRM and digital marketing capabilities. Rite Aid’s app will likely become more of a promotional vehicle, given weekly visits to the app are up 9% over the previous fiscal year; for that reason, suppliers should consider how their brands can augment and complement the retailer’s mobile capabilities.

Now on its own for the foreseeable future, Rite Aid is focused on aligning with its strategic fundamentals, investing in its strong points, and emerging as a healthy business. With recent news suggesting that the New York Stock Exchange may delist Rite Aid if the share price fails to rise above $1, time is not on the retailer’s side, so it may need to do something drastic to regain the confidence of the investor community.

For more information, please contact:

Ben Antenore, Analyst

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