Will It Be the End of the Pharmacy Chain?
Rite Aid, one of the prominent pharmacy chains in the United States, filed for bankruptcy in a significant and surprising move. The company had been facing financial challenges for several years, primarily stemming from increased competition in the retail pharmacy sector and the changing healthcare landscape. With declining sales, growing debt, and multiple lawsuits against them, Rite Aid seeks Chapter 11 bankruptcy protection and plans to sell part of its business to attempt to restructure.
Rite Aid has posted annual losses for several years and has an expected net loss of as much as $680 million in the current fiscal year. The Fortune 500 company was founded in 1962 in Pennsylvania and grew primarily throughout the Midwest and Northeast through M+A of smaller pharmacy chains, most notably 224 stores through the acquisition of Perry Drug Stores. Despite its established past, Rite Aid has faced intense pressure from industry giants like CVS and Walgreens. Rite Aid has previously sold or assigned many stores to Walgreens and Albertsons to regain its footing. States like New York (specifically upstate), Indiana, Wisconsin, and much of the southeast were the most notable locations where Rite Aid opted to remove themselves. However, even these large-scale cost-cutting attempts were not enough to shift the tides against their ever-growing long-term debt obligations. The Chapter 11 bankruptcy filing aims to reduce debt, close underperforming stores, and refocus the business on core operations.
Like many other pharmacy chains, Rite Aid has found itself embroiled in lawsuits related to the opioid epidemic that has gripped the United States. The largest of which is a national suit brought by the Department of Justice, which Rite Aid is currently facing and hopes to have dismissed through the Chapter 11 proceedings. The various lawsuits over the years, including the current DOJ suit, have accused the company of various practices, including a large number of improper distributions of prescription opioids and contributing to the opioid crisis. These lawsuits have sought compensation, including damages to cover the costs incurred by communities in addressing the opioid crisis, addiction treatment programs, and other related expenses. Previously, in 2022, Rite Aid settled for up to $30 million to resolve a lawsuit alleging it contributed to an oversupply of prescription opioids. In an official statement, deferral officials said that the drugstore chain filled “at least hundreds of thousands” unlawful prescriptions for various drugs, including opioids.
Over the past two years, Rite Aid closed over 200 stores and planned the potential closure of approximately 400 to 500 stores in September. Since filing for bankruptcy, Rite Aid will certainly close more stores than initially planned. Rite Aid listed $8.6 billion in total debts and $7.6 billion in assets in the U.S. Bankruptcy Court in New Jersey. The company additionally announced that it secured $3.45 billion in new financing from its lenders, which should prove some support through the Chapter 11 process.
On Sunday, Rite Aid appointed Jeffrey Stein as their new CEO, replacing interim CEO Elizabeth Burr. “Rite Aid has served customers and communities across our country for more than 60 years, and the important actions we are taking today will enable us to move ahead as a stronger company,” said Stein. “With the support of our lenders, we look forward to strengthening our financial foundation, advancing our transformation initiatives, and accelerating the execution of our turnaround strategy. In doing so, we will be even better able to deliver the healthcare products and services our customers and their families rely on – now and into the future.”
As part of the public filings for Chapter 11 Bankruptcy, Rite Aid has released a list of 347 stores they plan to cancel leases, thereby eliminating them from their balance sheets.
