Of course, Rite Aid still has work to do to chase down industry leader Walgreen Company (NYSE:WAG), whose operating margin of 4.8% in FY2012 was nearly double that of Rite Aid. The company is similarly positioning itself for growth in the wellness area with a larger portfolio of in-store clinics, usually staffed by a nurse practitioner, that offer comparable services to Rite Aid, including prescription management and education. Walgreen Company (NYSE:WAG) has also bet big on a global expansion of its operating footprint, with its 2012 multi-billion dollar acquisition of a major stake in Alliance Boots, the U.K.-based operator of over 3,000 health and wellness stores around the world.
In FY2013, Walgreen Company (NYSE:WAG) has posted mixed results, as it continues to try to win back customers that left for other pharmacies during the company’s temporary spat with benefits giant Express Scripts in 2012. For the period, Walgreen reported flat sales growth and a 7.2% decline in operating income compared to the prior-year period. Like Rite Aid, Walgreen Company (NYSE:WAG) has been negatively affected by declining comparable store sales in the prescription drug area, down 4.2% for the period, as consumers and their payors increasingly move toward filling prescriptions with generic equivalents. However, the company’s initiatives, like its Well Experience pilot store format, should provide long-term growth opportunities as Walgreen positions itself as a trusted health advisor, rather than as just a middleman in the drug distribution network.
The bottom line
Despite a hefty debt load, which tips the scales near $6 billion, Rite Aid Corporation (NYSE:RAD) is on the right path with its GNC Holdings Inc (NYSE:GNC) partnership and its focus on selectively trimming unprofitable stores from its network.Given the federal health care reform’s focus on employer incentives for wellness activities, the drugstore chains look well positioned for a greater role in the proactive management of its customers’ health. While it is unlikely to unseat Walgreen’s for overall industry leadership, Rite Aid should be one of the industry’s winners and belongs on investors’ watchlists.
The article Has This Drugstore Chain Found a Winning Strategy? originally appeared on Fool.com and is written by Robert Hanley.
Robert Hanley owns shares of Rite Aid and GNC. The Motley Fool has no position in any of the stocks mentioned.
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