Dive Brief:
- Rite Aid is preparing to file for Chapter 11 bankruptcy in the coming weeks to restructure more than $3.3 billion in long-term debt, according to The Wall Street Journal, which first reported the news. The bankruptcy filing would also enable the company to address lawsuits alleging it unlawfully filled hundreds of thousands of opioid prescriptions.
- Advisers to the pharmacy chain, which is one of the largest in the U.S., are working to create a restructuring plan ahead of the filing, Bloomberg reported, citing people with knowledge of the matter. In a statement to Retail Dive, Rite Aid said, “we do not comment on rumors and speculation.”
- According to the WSJ, Rite Aid hasn’t yet agreed on a settlement that it knowingly oversupplied prescription painkillers and the bankruptcy filing, should it move forward, would pause the federal, state and local claims against the retailer. The move would also likely consolidate the thousands of claims against the pharmacy retailer and allow it to resolve them in one place.
Dive Insight:
The company’s opioid-related legal liabilities add to Rite Aid’s long-standing financial pressures.
Rite Aid in June reported quarterly revenues of $5.7 billion, down from $6 billion a year ago. Its retail pharmacy segment revenues rose 3.4% year over year to $4.49 billion. But the retailer also reported a net loss of nearly $307 million versus $110 million year over year. The company lowered some segments of its long-term guidance last quarter.
Last June, CreditRiskMonitor issued Rite Aid a score of one on its FRISK scale, placing the company in what it calls the red zone. One is the lowest possible FRISK rating, which indicates that the company’s bankruptcy risk potential is 10 to 50 times higher than that of the average publicly traded company over the coming 12 months.
According to CreditRiskMonitor, more than 96% of all companies that go bankrupt have a FRISK score of five or less at least three months before a bankruptcy filing and 67% of companies have a score of two or less.
CreditRiskMonitor cited several factors that have contributed to Rite Aid's financial position in recent years. They include a string of unhealthy losses; falling stockholders’ equity; and limited working capital. For the fiscal 2024 year, Rite Aid said in its latest guidance it expects net losses to range between $650 million and $680 million.
In an earnings announcement, interim CEO Busy Burr said Rite Aid is making targeted reductions to its SG&A and capital expenditures through the rest of the year. Burr said the company believes it’s on track to achieve adjusted EBITDA growth in fiscal years 2025 and 2026.
“The retail drugstore industry is highly competitive and consolidation has accelerated,” Rite Aid said in its most recent annual report. “We believe that such trends will continue due to vertical integration of retail pharmacy companies with [pharmacy benefit managers], insurance companies, and providers; aggressive generic pricing programs at competitors such as Walmart as well as via the growth of discount cards; and increased utilization of digital commerce, will further increase competitive pressures in the industry.”
Due to this business climate, “front-end product pricing has continued to be highly promotional in the retail drugstore business, which contributes to additional competitive pressures,” Rite Aid said.
As the company moves toward a possible bankruptcy filing, Rite Aid has also seen several executive leadership changes in the last 12 months, Retail Dive previously reported. The company said in late June it had 2,200 retail pharmacy locations across 17 states.
