Rite Aid Corporation (RAD) reported sales for the month of June 2009. Same-store sales decreased 0.6% due to front-end same-store sales declining 4.3%, while pharmacy same-store sales increased 1.4% despite a significant 484 basis-point negative impact from new generic introductions.

June same-store sales of the recently acquired Brooks Eckerd stores sales declined 1.8% over the prior-year period, with front-end same-store sales declining 5.0% and pharmacy same-store sales decreasing 0.7%.

Excluding the Brooks Eckerd stores, June same-store sales would have been flat year-over-year, with front-end same store sales decreasing 4.4% and pharmacy same-store sales increasing 2.6%.

For the month of June, prescription revenue accounted for 67.9% of drugstore sales, and third party prescription revenue represented 96.3% of pharmacy sales.

The mix of Rite Aid’s same-store sales has been pressuring the company’s profitability for over two years. In fiscal 2007, same-store sales improvement increased 3.4% due to a 4.4% increase in pharmacy sales and a 1.9% increase in front-end sales. Robust and profitable pharmacy same-store sales supported the company’s profitability.

However, in fiscal 2008, the prevailing negative pharmacy sector trends of lower reimbursement rates and increased volume of generic prescriptions pressured the company’s margins. Despite same-store-sales growing 5.3%, the gross margin declined 570 bps and the operating margin contracted 466 bps to 6.3%.

In fiscal 2009, overall same-store sales increased only 0.8% as front-end sales declined due to the onset of the recession in late calendar 2008. The gross margin declined 52 bps to 26.8% in fiscal 2008. The same trends have continued in the monthly sales reports so far in fiscal 2010 with front-end same-store sales declining, while slight pharmacy same-store sales growth has been affected by the negative margin impact from new generic introductions, but especially from Zyrtec becoming an over-the-counter drug.
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