What Rite Aid's First Quarter Results Reveal About the Health of Its Business

Rite Aid reported its fiscal 2015 first-quarter earnings before the market opened today. Unfortunately for Rite Aid shareholders, Mr. Market was unimpressed. The stock fell more than 3% this morning to trade around $7.20 a share. It is worth mentioning, however, that Rite Aid actually beat Wall Street's revenue projections for the quarter, and the company's earnings were in line with analysts' estimates. Let's dig deeper to uncover what Rite Aid's first-quarter results tell us about the overall health of its business.

A brief recap
Here are some highlights from the drugstore chain's first quarter. Rite Aid posted a profit of $0.04 per diluted share. This met the Street's profit estimate for the period. However, the larger issue was that it marked a 55% decline in profit from the same period a year ago. Revenue offered a somewhat brighter picture, climbing 3% to $6.5 billion, up from $6.3 billion in the first-quarter of fiscal 2014. This topped Wall Street's expectations for revenue of $6.43 billion in the quarter, albeit marginally.

Rite Aid's quarterly comparable sales also offered a bit of breathing room. Same-store sales increased 3.1% in the quarter, while pharmacy same-store sales climbed 4.6%. Comparable sales, or same-store sales, is a key metric for retail stocks, because it measures the performance of stores open at least a year. This can help investors get a more accurate read on the operational health of the business. In this case, Rite Aid's positive comps tell us that its pharmacy business is gaining traction.

Beyond the numbers
The fact that customers filled more prescriptions at Rite Aid's pharmacies during the quarter is something that should stand out for long-term investors in this name. Specifically, Rite Aid said the number of prescriptions filled in stores open at least a year climbed 2.3% from a year ago. This is particularly important, because prescription sales made up more than 68% of Rite Aid's total drugstore sales in the quarter.

Prescription sales growth just north of 2% may not be cause for celebration. However, it suggests that Rite Aid's new Health Alliance program is helping drive new patients into Rite Aid pharmacies. Think of the Health Alliance initiative as a referral program. Physicians recommend the program to patients with chronic conditions such as high cholesterol or COPD, and Rite Aid pharmacists then work with the patient's doctor to create a "health care action plan" for managing their condition. This, in turn, drives more customers to Rite Aid's pharmacies. Not to mention these are higher value customers, as they often require regular prescription refills to treat their chronic conditions.

Rite Aid's Health Alliance is currently in four markets. Investors should see prescription sales grow at a faster clip as the company rolls the program into more markets in the quarters ahead.

Foolish takeaway
Rite Aid is still in the early stages of a turnaround, and as Foolish investors know, these things take time. Nevertheless, I believe the company is headed in the right direction. With more patients turning to retail pharmacies today for everyday health and wellness purposes, there is a major catalyst for this stock going forward.