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Brooks/Eckerd comps bode well for Rite Aid

BY Michael Johnsen

CAMP HILL, Pa. —With the reporting of Rite Aid’s fiscal 2009 first-quarter results on June 26, the days of Rite Aid minus Brooks/Eckerd same-store sales reporting are over. And while that may mean an initial drag on Rite Aid’s comparable store results in the short-term—Rite Aid reported a decline of 0.4 percent in same-store sales across its entire store base for the month of June, up 2.6 percent across Rite Aid’s core stores, but down 6.2 percent in the acquired stores—a number of developments in the near horizon could change that.

First, sales in the Brooks/Eckerd stores should show some pretty bold improvement as Rite Aid cycles through a number of factors, including the full transition from the Jean Coutu Group promotional strategy to the Rite Aid program. “Brooks/Eckerd still faces a tough comparison in June against ‘hot’ promotions implemented by prior management [that were] not ended until mid-July,” Lehman Brothers analyst Meredith Adler said in a research note released earlier this month. Right about the time those aggressive promotions ended, Rite Aid had moved to a single, national circular program, which consequently was before the Brooks/Eckerd stores had the full complement of Rite Aid merchandise—a fact that limited Rite Aid’s promotional capabilities for almost two quarters.

On a go-forward basis, Rite Aid’s promotional strategy is more in tune with today’s discretionary-cash-challenged consumer. “Our promotion plan going forward will continue to deliver good value to attract a more cost-conscious customer, but keep markdowns and margins in better balance at the same time,” Mary Sammons, Rite Aid chairman, president and chief executive officer, said.

Another factor that should soon cycle out of Rite Aid’s comp sales, the transition from a Brooks/Eckerd product mix to Rite Aid’s planogram, proved more disruptive to sales than Rite Aid executives had initially anticipated. As Rite Aid took control of Brooks/Eckerd last year, it assumed a front-end operation that had been on the decline during the nine months it took from acquisition-announcement to acquisition-completion.

To date, Rite Aid has completed some 70 percent of its Brooks/Eckerd remodels, with the remainder projected for completion by October. “As you would expect, front-end sales are improving more quickly [in the remodeled Brooks/Eckerd stores], and we’ve cut the rate of decline in half with strong growth in core drug store categories like OTC and vitamins, which include high margin Rite Aid brands,” Sammons said.

While it will be October 2009 before Rite Aid completely cycles through the impact of the product mix shift, in the short-term it has alredy begun to move the needle in private label. For its fiscal year 2008, Rite Aid’s store brand penetration topped out at 12.9 percent, and prior to the acquisition, private label accounted for less than 9 percent of front-end sales in the acquired stores. By May, private label penetration in the former Brooks/Eckerd stores had reached 11.5 percent.

Another positive takeaway for Rite Aid: even with a 5.4 percent decline in June comparable pharmacy sales across Brooks/Eckerd, Rite Aid’s overall pharmacy same-store sales results were relatively flat—0.5 percent. The same holds true for the front-end—a decline of 8.1 percent in the former Brooks/Eckerd stores versus a decline of 0.2 percent across Rite Aid’s entire store base.

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CVS Caremark to expand headquarters, add positions

BY Antoinette Alexander

WOONSOCKET, R.I. CVS Caremark has announced expansion plans for its headquarters over the next two years, a move that will help support the company’s continued growth and current hiring expectations of more than 200 new positions on its corporate campus.

The nature of the new jobs was not disclosed. In Rhode Island, the company currently employs 5,800 associates.

The plans are to build two new 150,000-square-foot office facilities in the Highland Corporate Park in Cumberland, R.I. The company has been based in Highland Corporate Park, which is jointly located in Cumberland and Woonsocket, since 1982. The company significantly expanded its customer support center facilities in 1988 and again in 2000.

“Our company was founded in Rhode Island more than 40 years ago and we feel fortunate to be able to continually reinvest in our home state,” stated Tom Ryan, chairman, president and chief executive officer. “As the largest company in Rhode Island we are looking to further expand our base of operations to support our continued growth and, as a result, increase our workforce over the next few years.”

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A&P announces fiscal Q1 improvements

BY Antoinette Alexander

MONTVALE, N.J. A&P, which operates 446 stores under such banners as A&P, Pathmark and Waldbaum’s, announced on Friday improved results for the first quarter as it nears the completion of the Pathmark integration.

“The first quarter of 2008 clearly demonstrates our continuing progression in operating improvement with the achievement of our fourth straight quarter of comparable store sales of over 3 percent,” stated Eric Claus, president and chief executive officer. “Further, Pathmark is already achieving positive results with comparable store sales climbing above 3 percent for the first time in many years. The company is also well underway with the completion of the Pathmark integration, as many of the planned milestones have been achieved. As of the end of the first quarter, our annualized run-rate of synergies is approximately $100 million.”

Sales for the quarter totaled $2.9 billion compared with $1.7 billion in the year-ago period. Same-store sales rose 3.2 percent, which excludes sales for Pathmark stores acquired in December 2007. Same-store sales for Pathmark, measured during the same period, rose 3.1 percent.

Net income from continuing operations was $3.8 million, with a net loss per diluted share of 48 cents after adjusting for non-operating income related to fair value adjustments. This compares with income of $61.4 million, or $1.45 per diluted share, in the year-ago period.

The company did not break out pharmacy sales results.

As previously reported by Drug Store News, the company announced during the quarter an integral step in its transformation—the conversion of the majority of SuperFresh stores in the Philadelphia market to the recently premiered Price Impact format under the Pathmark Sav-A-Center banner and a number of SuperFresh locations retaining the Fresh format with significant upgrades.

Also during the quarter, the supermarket chain completed the remodel of A&P Fresh in Holmdel, N.J., to the updated Fresh format and began remodeling additional stores. The company also premiered its Price Impact format in the Irvington and Edison Pathmark stores.

“The remainder of fiscal 2008 will be focused on progressing the company further toward operating profitability by: moving forward our operating and aggressive merchandising strategies; maintaining cost control and reduction disciplines throughout the business. Integral to our drive to profitability is the continued and ongoing execution of capital improvement projects all geared for maximum return, and particularly weighted to value propositions,” stated Claus.

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