Pending sale to WBA would leave chain with higher-performing stores
CAMP HILL, Pa. — Rite Aid Corp. has provided a more detailed picture of its store base after the expected closing of its deal to sell nearly half its stores to Walgreens Boots Alliance (WBA).
In a filing with the Securities and Exchange Commission, Rite Aid said it would have 2,336 stores following the sale to WBA, compared with 4,522 currently.
Of the post-sale stores, 1,337 (57%) have Rite Aid’s Wellness Store format versus 2,417 (53%) with the concept as of the July 18 SEC filing. Company executives have said that, compared with other Rite Aid locations, Wellness Stores have shown an approximately 1% higher prescription count and more than 3% higher front-end sales on a comparable-store basis.
The remaining 297 post-sale stores, or 13%, have the Customer World format, compared with 422 (9%) currently.
Rite Aid said in the filing that its store portfolio following the sale to WBA will be higher-performing in both the front end and the pharmacy. Average sales per store for Rite Aid after the transaction will be $6.106 million ($4.131 million pharmacy, $1.975 million front end), compared with the current $5.737 million ($3.923 million pharmacy, $1.814 million front end).
Meanwhile, average weekly prescription dispensed per store is pegged at 1,385 following the WBA transaction, versus 1,277 for Rite Aid’s present store base.
“Our remaining store base — which has a concentration of stores on the West Coast, Pennsylvania, Ohio, Michigan and New Jersey — is a financially stronger group of stores on a per-store basis than the store base today. We will have a higher average front-end sales, script count and EBITDA per store,” chairman and chief executive officer John Standley told analysts in a conference call after Rite Aid and WBA announced the store sale and termination of their planned merger. “Almost 60% of the stores have been remodeled to our groundbreaking Wellness format, and these stores are in cities and communities where we have strong market share and are very competitive.”
Under the new agreement, announced June 29, WBA is buying 2,186 stores, three distribution centers and related inventory from Rite Aid for $5.175 billion in cash. WBA also agreed to pay Rite Aid a breakup fee of $325 million.
Rite Aid said in the July 18 SEC filing that it plans to use $4.92 billion of the $5.5 billion in proceeds from the deal to pay down debt. For its 2017 fiscal year ended March 4, Rite Aid had total debt of about $7.3 billion.
If the Federal Trade Commission signs off on the smaller deal with WBA, Rite Aid would have stores in 28 states, compared with its current trade area of 31 states and the District of Columbia. The drug chain would no longer have stores in Indiana, South Carolina, Utah and Washington, D.C., and would see substantial store reductions in such states as New York, North Carolina, Georgia, New Jersey, Massachusetts, Maryland, Kentucky, Virginia and West Virginia.
“We are going to continue to evolve the Wellness format,” Standley said in the analyst call. “I really believe that the Wellness format is still the best drug store format in the marketplace today, and the stores have, overall, performed well for us.”
Rite Aid and WBA expect to finalize the new transaction within six months, pending FTC clearance and other closing conditions.
“I think we have an opportunity here to grow front-end sales over time by continuing to improve the product offering in the store,” Standley told analysts. “And we’ve got lots of work still to do with [our customer loyalty plan] wellness+ and ways we can continue to develop and evolve that program.”