It's been a rough year for big American retail chains.
Discounters like Tuesday Morning, Christmas Tree Shops, and Bed Bath & Beyond have suffered the most.
Those chains failed because they simply did not sell enough merchandise. All three tried to reorganize in Chapter 11 bankruptcy proceedings, but tight financial markets and unwilling vendors forced them into Chapter 7 liquidation.
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Surviving a Chapter 11 filing requires a company not only to find a funding source, it must persuade suppliers to keep sending goods. If its shelves are bare, simply being open does not matter because it keeps accruing expenses but can't sell items to bring in revenue.
What drives many firms into liquidation is not just a lack of funds. It's the reluctance of suppliers to extend credit because they're afraid that they won't get paid for the products they deliver.
Rite Aid (RAD) -) has a different problem.
The company is reportedly preparing a Chapter 11 filing because the nationwide pharmacy chain wants to restructure its $3.3 billion in debt. The filing would also give it some protection against lawsuits charging that it illegally filled hundreds of thousands of opioid prescriptions.
Image source: Pixabay.
Rite Aid has been losing money
Rite Aid saw its sales dip to $5.7 billion in its most recent quarter from $6 billion. The chain posted a $306 million loss, roughly triple its loss from the year-earlier quarter.
Interim Chief Executive Elizabeth Burr tried to spin that as a positive in her remarks in the chain's earnings release.
“Our first-quarter results were driven by strong script growth, solid pharmacy margins and early progress with our turnaround program, which offset underperformance on front-end sales in the Retail Pharmacy Segment and a higher-than-expected medical loss ratio at Elixir Insurance,” she said.
Burr said that the chain has to make some changes, but she tried to focus on the long term.
"To help mitigate this, we are making targeted reductions to [selling, general and administrative] and capital expenditures over the remainder of the year," she said.
"Importantly, we made good progress on turnaround initiatives across key areas of the business, and we continue to believe we are on track to achieve adjusted Ebitda growth in fiscal years 2025 and 2026.”
Burr did not address the looming opioid lawsuits, either in the earnings release or during the subsequent call with analysts to discuss those results.
Rite Aid gets ready for Chapter 11 filing
A bankruptcy filing would give Rite Aid some protection against the multiple lawsuits it faces.
"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," RetailDive reported.
"The move would also likely consolidate the thousands of claims against the pharmacy retailer and allow it to resolve them in one place."
In June RiteAid was given a score of 1 on Credit Risk Monitor's Frisk rating scale. That's the lowest possible rating on the scale and, according to the company, 96% of all companies that go bankrupt have a Frisk score of 5 or less at least three months before a bankruptcy filing.
Rite Aid declined to comment on the RetailDive story, calling the report "rumors and speculation."
