Despite concerns relating to COVID-19, Q1 was a strong quarter for Rite Aid. The retailer posted revenue of $6.03 billion, growing 11% from $5.37 billion in the same quarter last year. Net losses remain high, albeit shrinking - net loss from continuing operations was $72.7 million, declining 37% from $99.3 million prior year. Elsewhere, same-store sales for the quarter grew 6.6%, consisting of an eyebrow-raising 14.2% increase in front-end sales and a 2.2% increase in pharmacy sales.

Speaking to a “quarter like no other,” Rite Aid’s senior leadership team expressed confidence in both their retailer’s current performance and new strategy. Here are some key takeaways from the earnings call:

Impressive front-store growth

The most important news from the earnings call came from Rite Aid’s remarkable front-end comparable sales growth of 14.2%, marking the highest front-store quarterly increase for any drug retailer in at least five years. This growth was driven by general cleaning products, sanitizers, wipes, paper products, over-the-counter products, liquor, and summer seasonal items. Considering Rite Aid’s regional strength and strong shopper loyalty, it’s understandable that the retailer would benefit from quarantine in smaller markets where it’s viewed as both a reliable health and convenience destination. In addition, Rite Aid’s store brand penetration increased to 19.56%, an increase of 119 basis points, as the retailer continues efforts to launch additional private label items that support whole-being health.

Wellness+ performance powers growth across the business

Rite Aid’s most loyal shoppers, silver and gold members in Wellness+, are pulling the retailer through any disruption brought by COVID-19. According to COO Jim Peters, gold and silver membership numbers are up, while bronze is down. Any declines in trip frequency were more than offset by basket size increases triggered by gold and silver members. More broadly, the number of gold customers have increased substantially, partially due to new interactions with Rite Aid’s revamped website. Many of these new gold members are shoppers who recently used Rite Aid’s website for the first time and enrolled in wellness+ as a part of the ecommerce experience. With so many new gold members digital-first shoppers, the retailer will need to balance physical and digital investment to keep these shoppers for the long term.

New areas of investment

In his section of the earnings call, Jim Peters spoke to some of the new merchandising and digital initiatives his retailer plans to focus on in the future. Following moves made by CVS in the mental part of self-care relating to sleep and stress, Rite Aid is emphasizing several key areas that are important to its new core shopper, women between 25 and 49. These new categories include sleep, immunity, stress, and integrated beauty (the idea that beauty starts from within).

For its omnichannel strategy, Rite Aid is diverting resources away from the print circular to focus on digital engagement and sales. In only three weeks, the retailer has increased its fulfillment capacity by 700% and formed a relationship with Instacart to align with the third-party fulfillment boom and address consumer concerns about minimal contact shopping. Elsewhere, Rite Aid has deepened its relationship with Amazon, now offering its private label products on the ecommerce giant’s marketplace.

With a new strategy place and an unexpectedly strong first quarter, Rite Aid is starting its year right. Net losses are shrinking, and the retailer seems to be offering a product mix that responds to its shoppers. While it’s too early to say if Rite Aid’s turnaround strategy will succeed, the retailer’s rebirth just might become one of the most interesting stories in retail.

For more information, please contact:

Ben Antenore, Analyst

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