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Rite Aid’s 3Q17 Top Line Drivers

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Discussing Rite Aid’s 3Q17 revenue drivers

As we outlined in the previous part of this series, Rite Aid (RAD) reported a 5.6% YoY (year-over-year) fall in revenue from continued operations to $5.35 billion during the third quarter of 2017.

Rite Aid primarily operates through two businesses: the Retail Pharmacy segment and the Pharmacy Services segment. The Retail Pharmacy segment mainly includes selling prescription drugs, health and beauty products, personal care items, et cetera. The Pharmacy Services segment focuses mostly on PBM (pharmacy benefit management) services.

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Retail Pharmacy sales decline due to lower reimbursement rates and same-store sales decline

The company’s Retail Pharmacy Segment sales were down 3% YoY to $4 billion in 3Q17. As in the last couple of quarters, the key reasons for this decline were lower same-store sales and a decrease in reimbursement rates.

Same-store sales (from continuing operations) were down 2.5% YoY during the quarter. Lower comps were driven by a 3.5% fall in pharmacy sales and a 0.5% fall in front-end sales.

The number of prescriptions filled in same stores (adjusted to 30-day equivalents) declined 2.4% YoY, mainly due to Rite Aid’s exclusion from certain pharmacy networks. In comparison, prescriptions filled at Walgreens Boots Alliance’s (WBA) comparable stores increased 8.7% in its recent most quarter. The company reported results a day after Rite Aid.

PBM business to become the key focus area in a leaner RAD

Pharmacy Services Segment sales declined 12.2% YoY to $1.4 billion due to a fall in the commercial business and also due to the company’s decision to participate in fewer Medicare Part D regions.

However, the company now plans to increase its focus on the PBM business. Rite Aid manages its PBM business through Envision Rx PBM, which it purchased in 2015.

“Heading forward, Envision will serve as a growth engine for the entire enterprise,” said Kermit Crawford, President of Rite Aid. Kermit expects  Envision Rx to increase its customer base by 100,000 customers this year.

ETF investors seeking to add exposure to Rite Aid can consider the SPDR S&P Retail ETF (XRT), which invests 1.3% of its portfolio in the company.

Read next to know about the company’s 3Q17 profitability and margins.

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