Rite Aid, a major drugstore chain, has taken the step of filing for Chapter 11 bankruptcy protection in New Jersey as part of its strategy to address mounting challenges.
The company has outlined a restructuring plan that involves significant debt reduction and an evaluation of its retail footprint, including the closure of underperforming locations. In addition, Rite Aid has secured $3.45 billion in new funding from lenders to support its restructuring efforts.
The drugstore chain has been grappling with several issues, including declining sales, increased debt, and an array of lawsuits related to its role in the opioid epidemic.
During the last quarter, which ended on June 3, Rite Aid’s revenue decreased to $5.6 billion compared to $6.01 billion in the same period the previous year. Net losses also expanded to $306.7 million, or $5.56 per share, compared to a net loss of $110.2 million, or $2.03 per share, a year earlier.
As a result of these financial challenges, Rite Aid has lowered its fiscal 2024 outlook and warned investors that it anticipates losses in the range of $650 million to $680 million for the full year, ending in late February.
While the company’s retail pharmacy segment had been a key driver of growth, it was insufficient to offset the growing losses.
Several factors have contributed to the decline in revenue, including reduced demand for COVID-19 vaccines and testing, a decrease in membership in the company’s prescription drug plan, and customer losses from its Elixir pharmacy benefits business.
In response to these issues, Rite Aid has made leadership changes, appointing Jeffrey Stein as its new CEO and chief restructuring officer. The company is also taking steps to streamline its business and ensure long-term success.
Rite Aid Chairman Bruce Bodaken said in a statement, “Jeff is a proven leader with a strong track record of guiding companies through financial restructurings. We look forward to benefitting from his contributions and leveraging his expertise as we strengthen Rite Aid’s foundation and position the business for long-term success.”
Stein said he has “tremendous confidence in this business and the turnaround strategy that has been developed in recent months.”
A moment of existential doubt for drugstores
This bankruptcy filing reflects broader challenges faced by drugstore chains as consumers increasingly turn to e-commerce giants like Amazon, and major retailers such as Walmart and Target, for everyday items, often at a lower cost and with the convenience of home delivery. Larger competitors like CVS and Walgreens have transitioned toward a healthcare focus, investing in clinics and medical services.
CVS has added Minute Clinics inside some of its stores, which are like walk-in urgent care centers, and changed more of its stores into HealthHubs, which are places that offer a wider range of medical services.
It has grown in the health care field by buying Aetna, Caremark, and most recently Oak Street Health, a primary care business. Caremark is one of the largest pharmacy benefits managers.
Also, Walgreens has made some pricey deals to get into more healthcare fields. It now owns most of the primary care company VillageMD and wants to put doctor’s offices next to many of its drugstores.
New healthcare companies with lots of money have also made the competition stronger. Amazon paid $3.9 billion to buy primary care provider One Medical earlier this year. In 2018, Amazon bought the online drugstore PillPack. Walmart has opened more and more medical clinics across the country. Its thousands of shops already have pharmacies.
The opioid crisis
Rite Aid’s financial difficulties are compounded by numerous lawsuits that allege the company contributed to the opioid epidemic by inappropriately filling prescriptions for painkillers.
The Department of Justice filed a lawsuit against Rite Aid, accusing the company of violating the Controlled Substances Act by dispensing thousands of unlawful prescriptions for controlled substances, including fentanyl and oxycodone.
Rite Aid has contested the allegations, requesting the dismissal of the Department of Justice’s lawsuit, and denying any wrongdoing in filling unlawful opioid prescriptions. The company’s financial position and competitive challenges are further exacerbated by these legal issues.
The Chapter 11 bankruptcy filing and restructuring plan are part of Rite Aid’s efforts to address these multifaceted problems and work toward a more sustainable future.