Rite Aid Makes Progress in Long, Slow Turnaround

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Shares of drugstore operator Rite Aid Corp. (NYSE: RAD) dropped about 3% in morning trading Monday. This after the stock it a new multiyear high on Friday, following last week’s news that it had signed an expanded distribution agreement McKesson Corp. (NYSE: MCK), a health care services and information technology company and long-time partner with Rite Aid.

The new five-year deal is intended to drive greater supply chain efficiencies for both companies. McKesson will assume responsibility for the sourcing and distribution of generic pharmaceuticals for Rite Aid as part of its proprietary One Stop Generics program.

Rite Aid has struggled to gain any ground on industry leaders CVS Caremark Corp. (NYSE: CVS) and Walgreen Co. (NYSE: WAG) since the recession. The company has closed locations and made other efforts to improve its profitability in the face of stagnant sales. Rite Aid is also looking to strategic partnerships to help turn it around.

Besides the new deal with McKesson, its other big move in that direction is its partnership with and GNC Holdings (NYSE: GNC) that dates back to 1999. Since then, Rite Aid has added around 2,200 GNC stores-within-a-store at its locations. That is about a quarter of all GNC locations.

McKesson shares also reached new highs on the news of its agreement with Rite Aid. Analysts expect that, as more generics come on the market, margins for both companies should continue to rise. That in turn should lead to larger, ongoing gains.

McKesson shares were up fractionally in late morning trading, at $176.90 in a 52-week range of $102.12 to $179.40.

Shares of Rite Aid traded around $6.50 Monday morning, down from the high of $6.87 on Friday. Its 52-week low is all the way down at $1.57.

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