Rite Aid's Sales Slide

Net income jumped to $228.6 million in Q4, up from $59.4 million in the same quarter a year earlier. The boost came from a one-time tax benefit of $179.5 million on an allowance that was set aside for estimated future obligations. Revenue for the quarter dropped to $4.3 billion, down 1% from $4.4 billion a year ago, and same store sales also slid nearly 1%.

"We had a difficult quarter," Sammons says, "as we continued to feel the negative impact of the United Auto Workers' mandatory mail program." That program requires the union members, retirees and families to fill prescriptions by mail.

To cure that ill, Rite Aid plans to initiate its own pharmacy benefit management company to mail prescriptions. It is currently negotiating a contract with a third party that would provide the mail-order capability. Rite Aid would form a sales force, potentially by mid-year. Other problems included a late flu season, reduced reimbursement rates by insurance companies, the removal or decline in sales of some prescription pain killers and estrogen supplements.

Another initiative, "Living More," was launched in February, targeted to people age 60 and older. It provides discounts on prescriptions and other products and includes a newsletter in efforts to build loyalty. "It's already exceeded our expectations," Sammons says, adding that more than one million seniors have enrolled. Also, to build loyalty, Rite Aid is stepping up efforts to call customers and remind them to refill prescriptions.

In Q4 Rite Aid opened four new units, acquired two, remodeled 18, relocated four and closed 13. It operated 3,356 by the end of the quarter. Full-year revenue for the chain reached $16.8 billion, up from $16.6 billion the previous year. Based on the success of its new initiatives, the company projects sales of between $17.3 billion and $17.7 billion in fiscal 2006. It anticipates net income of from $45 million to $71 million.