Boston, MA 05/20/2014 (wallstreetpr) – Rite Aid Corporation (NYSE:RAD) is a $7.5 billion retail drugstore operator in the U.S. The company provides prescription drugs and a wide range of other merchandise. It is currently managing a turnaround and expects to enter a growth phase sooner than later.
The company recently entered a deal with medical supplies provider McKesson Corporation (NYSE:MCK) to source generic drugs on its behalf. Rite Aid benefited a great deal in the latest fiscal year because of strong performance of generic drugs in its stores.
The company benefits from generic drugs because they bear bigger profit margins than the branded drugs. Therefore, the more generic drugs come to the market the more Rite Aid experiences improvement in its bottom-line. The years 2012 and 2013 saw higher number of generic drugs entering the market and 2014 is already unfolding positively for the drugstore company.
With strong sales and margins in the generic drugs category, Rite Aid Corporation (NYSE:RAD) recently registered its second consecutive annual profit.
Lower prices
As for the deal with McKesson, Rite Aid looks to reducing its costs while boosting margin and profits. McKesson is the biggest single buyer of generic drug. That position allows it to acquire drugs at scaled-down prices from the manufacturers. Therefore, it also passes the benefit of the negotiated prices to its customers that include Rite Aid. As such, Rite Aid expects the favorable purchase prices of generic drugs to reduce its costs and support higher margins to boost its profitability.
In addition to reduced costs and improved margins on generic drugs, Rite Aid Corporation (NYSE:RAD) will not face working capital issues related to inventory because its deal with McKesson makes the transaction light. Therefore, Rite Aid expects boost its free cash flow position.
Managing a turnaround
Rite Aid Corporation (NYSE:RAD)’s turnaround has already achieved many remarkable positives from transforming stores to curbing costs and expenses to strategic acquisitions. Sales have improved in its stores while transformation of stores into wellness format continues to support strong front-end same-store sales. Having transformed more than 1,200 stores into wellness format already, Rite Aid has earmarked additional 450 stores for transformation this year.
According to the latest statistics, wellness stores have proven to have significant positive impact on performance.
Acquisition plans
As Rite Aid Corporation (NYSE:RAD) makes internal improves, it remains alive to the fact that strategic acquisitions are important for future growth. Therefore, the company intends to make more strategic acquisitions in efforts to expand its market share and revenue going forward.
