Rite Aid is a successful chain of friendly, neighborhood drugstores. Its knowledgeable and caring associates collaborate to deliver a superior pharmacy experience, alongside everyday products and services that contribute to the health and happiness of valued customers. The historical background of Rite Aid dates back to September 1962 when its first store, initially named Thrif D Discount Center, opened in Scranton, Pennsylvania. In just a few years, the company experienced rapid growth, expanding operations to five northeastern states by 1965. Consequently, in 1968, the name was officially changed to Rite Aid Corporation.
Rite Aid became publicly traded in its first year and started trading on the American Stock Exchange. By 1970, it had transitioned to the New York Stock Exchange. Within approximately ten years, Rite Aid expanded to a total of 267 stores across ten states. This growth allowed them to become the third-largest retail drugstore chain in the country by 1981. A significant achievement was reached in 1983 when Rite Aid’s sales surpassed $1 billion. Additionally, in 1987, Rite Aid acquired a total of 420 stores spread across several states including Florida, Maryland, Washington D.C., Delaware, Indiana, New York, Ohio, Virginia, West Virginia, North Carolina and Pennsylvania.
Rite Aid celebrated its 25th anniversary by expanding and reaching a significant milestone of over 2,000 stores. This accomplishment solidified Rite Aid as the leading drugstore chain in the country. In 1995, they acquired Perry Drug Stores, which was previously Michigan’s largest drugstore chain. The following year, Rite Aid expanded to the West Coast by acquiring Thrifty Payless Holdings Inc., the most prominent drugstore chain in that area. Soon after, Rite Aid entered the Gulf Coast Region with acquisitions of Harco Inc. in Tuscaloosa, AL and K & B Incorporated in New Orleans, LA. These acquisitions added an additional 332 stores to Rite Aid’s portfolio. In January 1999, Rite Aid formed a partnership with GNC (General Nutrition Companies), known for their mineral supplements, sports nutrition, and herbal products. As a result of this collaboration, GNC products became available at all Rite Aid stores nationwide.
Rite Aid and Drugstore.com have collaborated to create PharmAssure, a brand of vitamins and nutritional supplements available at both stores. In June 1999, Rite Aid expanded its online marketing efforts by partnering with Drugstore.com, allowing customers to access health information, make purchases, and order prescriptions for same-day pick-up at a Rite Aid store. In September 2008, the collaboration between Rite Aid and Drugstore.com strengthened as they launched an exclusive online store for over-the-counter products. Later that year, a new management team assumed control of Rite Aid with the objective of revitalizing the company and implementing a turnaround plan. This team successfully transformed the corporate culture resulting in a complete overhaul of the business.
Rite Aid has improved its financial performance by implementing strict financial controls and making operational improvements. The company’s future focus is on expanding customer health and wellness services, including developing more ways to help customers with their prescribed medication, increasing the number of pharmacists trained in administering immunizations, and expanding medication therapy management services for patients with chronic conditions. Rite Aid also aims to improve customer service and retain loyal customers as part of its strategy to increase profitable sales.
In April 2010, Rite Aid introduced their wellness+ customer rewards program. This program offers customers various health and wellness benefits, as well as coupons and special prices. With a presence in 31 states across the East and West coasts, Rite Aid operates over 4,700 stores. The company’s annual sales surpass $26.1 billion. Evaluating a company’s operations involves analyzing its financial highlights to identify strengths and weaknesses. Financial managers heavily depend on this analysis to evaluate past performance and make future plans.
Based on the analysis of charts, it can be observed that the company has faced a decline in revenue over the last two years. This decline can be attributed to crises in the pharmaceuticals, household items, and convenience competition sectors. Consequently, the company has incurred a net loss for these two years primarily because expenses have surpassed revenue.
In contrast, there has been an increase in the company’s total assets compared to the previous year. However, liabilities have not experienced significant changes due to insufficient cash flow for debt repayment.
[pic] Financial Analysis
Financial analysis heavily relies on ratios as valuable tools for measuring profitability, liquidity, financial structure, reordering, leverage, and interest coverage. These ratios not only reflect past performance but also offer predictive insights by identifying potential problem areas early on. Additionally, financial ratios are crucial in aiding investors with informed decision-making regarding the purchase, retention, or sale of securities. Specifically, liquidity ratios provide details about a firm’s ability to meet current obligations. In 2012 and 2011 respectively, the working capital ratio indicates that the company has sufficient cash, accounts receivable, inventory, and short-term investments to cover its current liabilities.
The company’s current ratio is 1.80, indicating that it has $1.80 of current assets for every $1.00 of current liabilities.
Profitability ratios show how successful the company is in generating profits from its investments.
The Return on Asset ratio shows a loss of $4.94 for each dollar invested in assets in 2012, compared to a net loss of $7.11 in 2011.
The Profit Margin ratio indicates a loss of $1.41 for each dollar of net sales in 2012 and a loss of $2.20 in 2011, suggesting that the company is losing money on each sale and unable to cover fixed costs with revenues.
Solvency ratios give information about the company’s ability to pay long-term debt, with the Debt to Assets ratio being 135.13% in 2012 and 129.27% in 2011, revealing that most assets are financed through debt.
Companies that have a debt/asset ratio greater than one are highly leveraged, implying that a majority of their assets are financed through debt. If creditors begin demanding repayment of the debt, these companies may be at risk. A negative debt-to-equity ratio signifies that a company’s net worth is negative and it is likely facing difficulties due to long-term losses.
Effectiveness or Activity Ratios evaluate the efficiency with which a company utilizes its assets. The Asset Turnover ratio assesses the effectiveness of asset utilization in generating sales. In the case of this company, the low Asset Turnover ratio indicates that for every dollar invested in assets, it generates $3.50 in sales.
The Account Receivable Turnover ratio indicates how frequently accounts receivables are collected within an average year. A high turnover ratio suggests prompt bill payments by customers, which generally benefits the company.
If the turnover ratio is too high compared to the industry, it may suggest that the company is being overly restrictive in its credit and collection policies and not granting credit to enough customers. The company collects its receivables 26 times a year. To summarize our analysis, we compared our financial ratios with those of Rite Aid’s closest competitor, Walgreen, and how these companies compare with industry standards using 2011 figures shown in the following table: |2012 | | |Rite Aid |Walgreen’s | |Gross Margin |26.01% |28.0% |
|Profit Margin |1.41% |3.51% |
|ROA |-4.94% |9.41%
|ROE |-15.36% |18.565
From this chart, we observe that Walgreen’s has a gross margin of 28.40% for their sales, whereas Rite Aid has a gross margin of 26.01%. This implies that Walgreen’s has more current sales to compare with Rite Aid.
Furthermore, Rite Aid’s profit margin is lower compared to Walgreen’s, indicating that the company incurred a net loss in the fiscal year; put simply, the company is losing money.
Rite Aid also exhibits a negative return on equity while Walgreen’s boasts a positive ratio.
Rite Aid has a negative return on asset, while Walgreen has a positive return on asset. In summary, Rite Aid fills about 63K prescriptions annually, which is 30% lower than Walgreen’s nearly 90K prescriptions. Furthermore, Rite Aid’s front-end sales per square foot of retail space is approximately $140, significantly lower by 40-50% compared to Walgreen’s $290. However, Rite Aid’s top 3,000 stores fill around 81K prescriptions per store and generate $200 per square foot. Although the company is not performing well in terms of profit, there has been an improvement from previous years.
Despite performing well in most areas, Rite Aid’s inventory turnover is below average. With more than 50 years of experience, Rite Aid has made significant progress by acquiring chains and expanding their presence nationwide. They are currently the largest drugstore chain in the country and continue to expand their store count annually. To improve their financial performance, we suggest that the company focuses on increasing profitability in order to address the negative return on equity ratio.
On the other hand, there is a need for the company to decrease general and administrative expenses, which suggests room for improvement in key metrics. However, some Rite Aid stores perform poorly due to less convenient locations and lower per-capita income in their markets. The company also faces strong competition from larger competitors like Walgreen pharmacies. From a solvency perspective, the business relies on financing its long-term assets, indicating further issues and a high level of risk.
