June 20 - Rite Aid posts a profit for the third straight quarter. Generic drugs sales fattened profits but hurt revenues. Fred Katayama reports.
Rite Aid was right about its quarterly earnings forecast, posting profit for the third straight quarter after years of losses. The drugstore chain earned $89.7 million. Helping boost earnings: generic drugs, which are more profitable than brand name drugs. The company's gross margins rose to nearly 29 percent from 27 percent. But generics are also cheaper in price, and that caused revenues to drop. And sales at stores open at least a year fell 2-and-a-half percent in the fiscal first quarter. What could also pressure this high-flying stock: Rite Aid's outlook. It lowered its profit projections for the full year, blaming expected charges from its debt refinancing and accompanying interest savings. In a note, Goldman Sachs analyst Matthew Fassler wrote: "We believe the firm will continue to demonstrate tight cost control, especially in light of fading gross margin benefits due to fewer generic drug introductions, which increases focus on the expense line." Rite Aid's stock has been a stellar performer this year, more than doubling in value, far outstripping its rivals Walgreen and CVS Caremark. Faced with increasing competition from supermarkets and discount chains, Rite Aid is trying to transform itself with its customer loyalty program and by remodeling stores as it retires expensive debt.