RAD's latest initiative may help drive growth

WHAT IT MEANS AND WHY IT'S IMPORTANT — The program to offer certain generic drugs virtually for free to Medicare Part D beneficiaries is one of Rite Aid’s many new ways to attract more customers and thus grow its sales and profits, especially in the pharmacy.

(THE NEWS: Rite Aid partners with Envision Insurance Co. to offer Medicare Part D Rx drug plan. For the full story, click here)

So far, the retailer’s plethora of new programs appears to be working. On Thursday, the company announced that its comps for October had increased by 2.9%, while total sales increased by 2.8% to nearly $2 billion. Much of the increase in same-store sales was in the pharmacy, which saw a 3.6% increase, including a 160-basis point offset resulting from new generic drug introductions; front-end comps were up 1.3%.

Analyst John Heinbockel of financial services firm Guggenheim Partners said Thursday that the combination of the generic wave and the comp boost from the Wellness+ loyalty card program and store remodels would drive accelerated growth in late 2011 and early 2012 in EBITDA.

For that reason, generic drugs offered for no deductible or co-pay present an effective means of bringing customers up to the pharmacy counter and getting them to shop in the front end as well.