A Rite Aid store stands in Brooklyn on August 28, 2023 in New York City.
Spencer Platt | Getty Images
Rite aid The company filed for Chapter 11 bankruptcy protection in New Jersey on Sunday and said it would begin restructuring to significantly reduce its debt.
The company said it had reached an agreement with creditors on a restructuring plan that would involve evaluating its retail presence and closing underperforming locations.
Rite Aid also said lenders agreed to an extension $3.45 billion in new funding to “ensure sufficient liquidity” when implementing its restructuring plan.
The beleaguered drugstore chain has struggled with declining sales, mounting debt and a series of lawsuits alleging the company helped fuel the country’s opioid epidemic by over-supplying painkillers.
In the most recent quarter ended June 3, revenue fell to $5.65 billion, compared to $6.01 billion in the same period last year. Net loss widened to $306.7 million, or $5.56 per share, compared to a net loss of $110.2 million, or $2.03 per share, in the same period last year.
As a result of the difficult quarter, Rite Aid cut its fiscal 2024 forecast and warned investors that it expects losses of between $650 million and $680 million for the full year, which is scheduled to end in late February.
Rite Aid’s retail pharmacy segment has long been a key growth driver for the company, but it hasn’t been enough to offset mounting losses.
Falling demand for Covid vaccines and testing, a reduction in membership in the company’s prescription drug program and a loss of customers from its Elixir pharmacy benefit business have contributed to a decline in sales at the struggling drug chain.
On Sunday the company Jeffrey Stein appointed appointed as the new CEO and restructuring officer as well as a member of the board. Elizabeth Burr has served as interim CEO since January and remains on the company’s board.
Rite Aid Chairman Bruce Bodaken said in a statement: “Jeff is a proven leader with a strong track record of leading companies through financial restructurings. We look forward to benefiting from his contributions and leveraging his expertise as we strengthen Rite Aid’s foundation and position the company for long-term success.”
Stein said he has “tremendous confidence in this business and the turnaround strategy developed over the past few months.”
An existential crisis for drugstores
Drugstores like Rite Aid are facing an existential crisis as shoppers increasingly turn to retailers like Rite Aid Amazon, Goal, Walmart and others for toothpaste, shampoo and other essentials – often at a cheaper price and with the convenience of delivery to the customer’s doorstep.
Rite Aid also struggled to keep up with its larger competitors. CVS And Walgreensas these companies focused on healthcare and made significant investments accordingly.
CVS has opened in-store Minute Clinics, reminiscent of walk-in urgent care facilities, and has converted more of its stores into HealthHubs, locations with a longer range of medical services.
The company has expanded its reach in healthcare with the acquisition of Caremark, one of the largest pharmacy benefit providers, and health insurer Aetna and most recently primary care provider Oak Street Health.
Walgreens has also struck expensive deals to expand its reach into healthcare. The company has become the majority owner of primary care company VillageMD and plans to open doctor’s offices next to many of its drugstores.
Newer – and well-capitalized – healthcare entrants have also increased competitive threats. Amazon completed its acquisition of primary care provider One Medical in a $3.9 billion deal earlier this year and acquired online pharmacy PillPack in 2018. Walmart, which has pharmacies in its thousands of stores, has opened a growing network of medical clinics in parts of the country.
Rite Aid’s financial situation and competitive disadvantages are exacerbated by the numerous lawsuits the company is facing alleging that the company contributed to the nation’s opioid epidemic by knowingly writing prescriptions for painkillers that did not meet the legal requirements requirements met.
The Justice Department filed a lawsuit Men’s suit against Rite Aid earlier this year, alleging that it violated the Controlled Substances Act by writing thousands of unlawful prescriptions for controlled substances such as fentanyl and oxycodone.
Rite Aid has asked a court to dismiss the department’s lawsuit, denying allegations that it illegally filled opioid prescriptions.
—CNBC’s Christine Wang contributed to this report.