Rite Aid (RAD)

Adding more than 1,800 east coast stores via the acquisition of Brooks/Eckerd increases economies of scale in advertising, purchasing, and distribution. The acquisition was a risky move considering the amount of debt it incurred in an already poor economic environment, but if it is completed smoothly, it should make Rite Aid significantly more competitive on the east coast.

Though Rite Aid has posted a $2.3 billion loss in the fourth quarter, it is successfully incorporating its most recent Brooks and Eckerd Acquisition and has increased 2% in same-store sales and a positive cash flow from operations of $324.8 million. With stock prices under $.50, Rite Aid is primed for growth.

A.) The Scripts Express and Walgreens contract expires 1/1/2012, so RAD may see an increase in traffic from disgruntled WAG customers who will then have to pay full retail prices. B.) The top management guys (Mr. Standley/Martindale/Vitrano) are former PathMark colleagues who must work well together as their efforts are now be paying off because since December of 2010 (except March 2011) stores open at least 1 year have experienced a small increase in sales. C.) If heathcare reform is approved, this may increase prescription demand as will the aging boomer generation. D.) Their Customer World store format rivals what the competitors have. Even with all the positive comments above, an effective advertising campaign is needed to generate greater awareness in RAD from customers and investors. The unique RAD blue/red shield should be utilized in a REGULAR and ONGOING commercial campaign since medications are purchased to "shield" ourselves from illness. Such a campaign by the 3rd largest drugstore chain would enable them to compete more effectively given that WAG and CVS have regular commercials and/or are featured on syndicated TV programs like "The Dr.'s."