“To be successful chain of friendly, neighborhood drugstore. Our knowledgeable, caring associates work together to provide a superior pharmacy experience and offer everyday products and services that help our valued customers lead healthier, happier lives” Historical Background Rite Aid’s first store opened in September of 1962 in Scranton, Pennsylvania. When it first opened it was called Thrif D Discount Center. The company grew rapidly expanding to five northeastern states by 1965. By 1968, the name was officially changed to Rite Aid Corporation.
It became public it’s first year after becoming Rite Aid and started trading on the American Stock Exchange. By 1970, it moved to the New York Stock Exchange. Almost ten years later, Rite Aid opened 267 stores in 10 states. They became the third largest retail drugstore chain in the country by 1981. They surpassed the $1 billion sales mark in 1983. Rite Aid acquired 420 stores in Florida, Maryland, Washington D. C. , Delaware, Indiana, New York, Ohio, Virginia, West Virginia, North Carolina and Pennsylvania in 1987.
They also celebrated their 25th anniversary that year. By expanding the company across the market and passing the 2,000-store mark they became the nation’s largest drugstore chain with the most stores. In 1995, they acquired Perry Drug Stores, the largest drugstore chain in Michigan. In 1996, Rite Aid expanded into the West Coast by acquiring Thrifty Payless Holdings, Inc. , the largest drugstore chain on the West Coast. Shortly after, they entered the Gulf Coast Region acquiring Harco, Inc. from Tuscaloosa, AL and K & B Incorporated from New Orleans, LA adding 332 stores to Rite Aid. In January 1999, Rite Aid formed a partnership with GNC, General Nutrition Companies, mineral supplements, sports nutrition and herbal products. With this partnership, GNC became “stores within stores” in Rite Aid stores across the country.
The two companies created a line of vitamins and nutritional supplements called PharmAssure sold in both stores. In June of 1999, Rite Aid expanded it’s marketing on the Internet by partnering with Drugstore. om an Internet pharmacy. Customers can view online health, make purchases and order prescriptions for same-day pick-up at a Rite Aid store. In 2008 of September, Rite Aid and Drugstore. com expanded their relationship with a lunch of a new Rite Aid online store for over-the-counter products. Later that year, a new management team joined Rite Aid to start a new course for the company and create and execute a new turnaround plan. The new management team has created a new corporate culture that has completely changed the business.
They are now put in strict financial controls, improved the operations, and financial performance. Going forward, Rite Aid’s top priorities is expanding customer health and wellness services, by developing more ways to help customers take their medication as prescribed, training more pharmacists to administer immunizations and expanding medication therapy management services for patients with chronic conditions. Another priority is growing profitable sales, by improving customer service and keeping a loyal customer base.
In April 2010, they introduced their customer rewards program called wellness+. This program provided customers with free health and wellness benefits, coupons and special prices. Rite Aid now has approximately 4,700 stores in 31 states on both the East and West coasts with annual sales of over $26. 1 billion. Financial Hightlights Financial highlights are the key aspects of the firm operations. It is designed to determine the relative strengths and weaknesses of the company. Financial managers need the information provided by analysis to evaluate the firms past performance and to map future plans.
Therefore,by looking at charts, we can conclude that for the past two years, the company’s revenue has been decreased because of crisis in the pharmarcuticals, house holds items, and convience competition which caused the company to have a net loss in the previous two years. The reason is that the company’s expenses exceeded the revenue. Company’s assets have been increasing compared to last year total assets. There hasn’t been a dramtic change in liabilities because the company doesn’t have enough cash to pay its debt. [pic] Financial Analysis
Ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas. Financial ratios are important because they help investors make decisions to buy hold or sell securities. Liquidity ratios tell a user about firm’s ability to pay current bills. |Ratios |2012 |2011 | |Working capital |1,934,267 |1,991,042 | |Current Ratio |1. |1. 8 | Working capital is positive, meaning that the company has enough cash, accounts receivable, inventory, and short time investments to cover the current liabilities.
Current Ratio shows that the company has $1. 80 of current assets for each $1. 00 of current liabilities. Profitability Ratios how successful a company is in terms of generating returns or profits on the investment that it has made in the business. | | |Ratios |2012 |2011 | |Return on Asset |(4. 94) |(7. 11) | |Profit Margin |(1. 41) |(2. 20) | From Return on Asset ratio we can conclude that in 2012 company lost $4. 4 on each dollar invested in asset but in 2011 for each dollar invested company’s assets generate $2. 17 net loss. Profit margin shows that in 2011 on each dollar of net sales the company lost $1. 41 but in 2011 company is losing money on each sale and can’t pay your fixed cost with revenues. Solvency Ratios provide information on the ability of the firm to pay its long-term debt. | Ratios |2012 |2011 | |Debt to Assets|135. 13% |129. 27% | |Debt to Equity|(3. 85) |(4. 42) | Debt to Asset ratio shows that most of the company’s assets are financed through debt.
If the ratio is greater than one, most of the company’s assets are financed through debt. Companies with high debt/asset ratios are said to be “highly leveraged,” and could be in danger if creditors start to demand repayment of debt. A negative debt-to-equity ratio means the company’s net worth is negative and the company probably is in trouble because it has been losing money for a long time. Effectiveness or Activity Ratios test how effectively a firm uses is assets. | Ratios |2012 |2011 | |Asset Turnover |3. 50 |3. 23 | |Account Receivable Turnover |26. 9 |25. 24 | Asset Turnover ratio measures how efficiently assets are used to produce sales. In other words, it shows how many dollars of sales are generated by each dollar of assets. The company has relatively low Assets Turnovers, meaning that the company would produce $3. 50 in sales for each dollar invested in assets. Account Receivable Turnover indicates how many times, on average, accounts receivables are collected during a year. A high turnover ratio is generally good for the company since it means that customers are paying their bills on time.
If the turnover ratio is too high as compared to the industry the company is in, it may mean, however, that the company is too restrictive in its credit and collection policies and not extending credit to enough customers. The company collects its receivables 26 times a year. To conclude our analysis, we compared our financial ratios with one of Rite Aid closes competitor, Wall Green and how these companies compare with the 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 can see that Walgreen’s have 28. 40% of gross margin for their sale but Rite Aid has 26. 01% gross margin their sale. This means that Walgreen’s has more current sales to compare with Rite Aid. And the profit margin for Rite Aid is also low compared to Walgreen’s, which means that the company has net loss in the fiscal year. In other words the company is losing money. Rite Aid has a negative return on equity but Walgreen’s has a positive ratio.
The return on asset is a negative ratio oppose to Walgreen’s ratio, which is positive. Summary Rite Aid stores annually fills about 63K prescriptions, which is 30% lower than Walgreen whose stores fill close to 90K prescriptions each. Also, Rite Aid’s front-end sales per square foot of retail space is close to $140, which is 40-50% lower than Walgreen’s $290. Yet, Rite Aid’s top 3,000 stores fill close to 81K prescriptions per store and generate $200 per square foot. The company is not doing well in terms of profit; however, they were doing better than the previous years.
They are doing well on their activities except for inventory turnover and the rest are at an average. Rite Aid has been in business for over 50 years and is continuing to strive. They have had a transformational change from acquiring different chains across the country, and expanding from one coast to another. They are currently the largest drugstore chain in the country with more stores expanding each year. Recommendations In our opinion the company must improve the negative return on equity ratio or make it smaller. To improve this ratio the company must increase the profit.
On the other hand the company must reduce general and administrative expenses. This indicates significant scope for potential improvement in the key metrics. However, several of these Rite Aid stores under-perform owing to their inferior locations in terms of convenience of locations as well as lower per-capita income in the markets they serve. It also faces stiff competition from much bigger market leaders Walgreen pharmacies. Based on the solvency their long term assets shows the business relies on financing their assets. This concludes that the business has more problems and is highly in risk.