Rite Aid’s Future Depends on These 3 Things

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Rite Aid shares have more than quadrupled in the past year thanks to restructuring its debt, closing unprofitable stores, boosting generic scripts, and broadening its immunization services. If Rite Aid hopes to continue its recovery and challenge CVS and Walgreens it will need to execute on three important initiatives.

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Rite Aid’s Future Depends on These 3 Things

  1. 1. Rite Aid’s Future Success Depends on These 3 Things
  2. 2. 1. Rite Aid needs to deleverage Restructuring its debt gave Rite Aid the flexibility to remodel stores and kick off important customer care initiatives aimed at boosting foot traffic. But if Rite Aid wants to have enough financial firepower to compete with CVS and Walgreen over the long haul it's going to need to keep working its multi-billion dollar debt down. CVS and Walgreen both sport debt to capital ratios less than Rite Aid, which allows them to deliver far greater earnings per share.
  3. 3. 2. Expand more into healthcare clinics While CVS and Walgreen have rapidly expanded the number of in-store health clinics, Rite Aid's approach has been more cautious. CVS operates more than 800 Minute Clinics and those clinics are generating profit friendly script growth by serving patients who previously turned to emergency rooms for care. Rite Aid’s recent acquisition of RediClinic, a Texas- based chain of 30 clinics located in H.E.B. grocery stores, is a great first step, but the company has a lot of work to do if it hopes to catch-up to its peers.
  4. 4. 3. Expand into important new markets Rite Aid got in over its head when it acquired Eckerd back in 2007. That deal saddled it with debt and overlapping markets cannibalized sales at existing stores. As a result, Rite Aid has reduced its store count even as CVS and Walgreen have grown. If Rite Aid hopes to maintain scale to compete, it will need to start opening new stores again, particularly in the retirement states like Florida and Texas where it currently only operates the newly acquired RediClinics.
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