Rite Aid files for bankruptcy amid slowing sales, opioid litigation

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A Rite Aid store stands in Brooklyn on August 28, 2023 in New York City.

Spencer Platt | Getty Images

Rite Aid 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 reached a deal with creditors on a restructuring plan that includes evaluating its retail footprint and closing underperforming locations.

Rite Aid also said lenders agreed to provide $3.45 billion in new funding to “provide sufficient liquidity” as it embarks on its restructuring plan.

The beleaguered drugstore chain has been grappling with slowing sales, mounting debt and a slew of lawsuits that allege the company helped fuel the nation’s opioid epidemic by oversupplying painkillers. The company’s most recent quarter, ending June 3, saw revenue drop to $5.6 billion from $6.01billion in the previous period. Rite Aid’s fiscal 2024 outlook was lowered as a result of the poor quarter. The company warned investors that it expects to lose between $650 million and $680 million for the full year, which is scheduled to end in late February.

As a result of the rough quarter, Rite Aid lowered its fiscal 2024 outlook and warned investors it expects to lose between $650 million and $680 million for the full year, which is slated to end in late February.

Rite Aid’s retail pharmacy segment has long been a key growth driver for the company, but that hasn’t been enough to offset its mounting losses.

Plummeting demand for Covid vaccines and testing, a membership reduction in the company’s prescription drug plan and a loss of customers from its Elixir pharmacy benefits business have contributed to a slowdown in revenue at the struggling drug chain.

On Sunday, the company appointed Jeffrey Stein as its new chief executive officer and chief restructuring officer as well as a member of its board. Elizabeth Burr, who has been acting as interim CEO for the past few months, will continue to serve on the board. We are looking forward to leveraging Jeff’s expertise and benefiting from his contributions as we strengthen Rite Aid and position the company for long-term growth. Stein said that he had “tremendous faith in the business and in the turnaround strategy developed in recent weeks. “

An existential crisis for drugstores

Drugstores like Rite Aid have faced an existential crisis as shoppers increasingly turn to retailers like

Amazon

,

Target, Walmart and others for toothpaste, shampoo and other staples — often at a cheaper price and with the convenience of delivery to customers’ doors.Rite Aid has also struggled to keep up with its bigger rivals, CVS and

Walgreens, as those companies have pivoted to a health care focus and made sizable investments to match.CVS has opened in-store Minute Clinics, which resemble walk-in urgent care facilities, and turned more of its stores into HealthHubs, or locations with a longer list of medical services. It has expanded its reach in health care by acquiring Caremark, one of the largest pharmacy benefits managers, health insurer Aetna

and, most recently, primary-care company Oak Street Health.

Walgreens has also struck pricey deals to expand its reach in health care. It has become the majority shareholder of VillageMD, a primary-care provider. The company plans to open doctor’s offices near many of its stores. Newer, well-capitalized health-care providers have also increased the threat. Amazon acquired the online pharmacy PillPack earlier this year. The company also has pharmacies in its thousands of stores. Walmart, which has pharmacies in its thousands of stores, has opened a growing network of medical clinics in parts of the country.The opioid crisis Rite Aid’s financial position and competitive disadvantages are compounded by the many lawsuits it’s facing that allege the company contributed to the nation’s opioid epidemic by knowingly filling prescriptions for painkillers that did not meet legal requirements.

The Department of Justice filed a suit against Rite Aid earlier this year, claiming that it violated the Controlled Substances Act by filling thousands of unlawful prescriptions for controlled substances such as fentanyl and oxycodone.

Rite Aid has asked a court to dismiss the department’s lawsuit and denied allegations that it filled unlawful opioid prescriptions.

— CNBC’s Christine Wang contributed to this report.