Rite Aid Corporation (RAD) -) shares extended declines in pre-market trading Monday after the retail pharmacy chain filed for Chapter 11 bankruptcy protection late Sunday, citing slumping sales and litigation costs linked to the nation's opioid crisis.
The group said it hoped to continue operations as it seeks time from the court process to restructure its debts and strengthen its balance sheet, adding it secured around $3.45 billion in so-called 'debtor-in-possession' funding from a group of lenders that will sit atop its existing debts, as well as its shareholders, in the event of a complete company liquidation.
Rite Aid also appointed turnaround expert Jeffrey Stein to run the group during its Chapter 11 process, which allows companies time to engage creditors under the supervision of a court-appointed judge, to either stabilize its business and re-emerge as a separate entity or seek liquidation. Stein replaces Elizabeth Burr, who was acting as interim CEO following the departure of Heyward Donigan in June.
"Jeff is a proven leader with a strong track record of guiding companies through financial restructurings," said Chairman Bruce Bodaken. "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.”
Rite Aid listed assets and liabilities of between $1 billion and $10 billion in its Chapter 11 filing with the U.S. Bankruptcy Court in New Jersey, noting it had around 100,000 overall creditors. Its overall debt was pegged at $8.6 billion as of June 3, the filing indicated, with repayment dates as early as 2025.
Slumping sales, particularly linked to Covid vaccines and treatments, added to Rite Aid's woes following a March compliant from the U.S. Department of Justice that it ignored "red flags' in filing hundreds of thousands of Illegal prescriptions over a five year period ending in June of 2019.
"Rite Aid’s pharmacists repeatedly filled prescriptions for controlled substances with obvious red flags, and Rite Aid intentionally deleted internal notes about suspicious prescribers," the DoJ said. "These practices opened the floodgates for millions of opioid pills and other controlled substances to flow illegally out of Rite Aid’s stores.”
Rite Aid said it would likely close more of its 2,300 stores over seventeen states, while steepening cost-cutting efforts, as part of its turnaround plans, and is looking to sell its Elixir Solutions pharmacy benefits division to Frederick Howe-owned MedImpact for $575 million, subject to court approval.
Retail pharmacy group has been hit hard by both slumping Covid vaccine sales, which keep potential shoppers from visiting stores, as well as a pullback in consumer discretionary spending linked to elevated inflation.
Earlier this month, Walgreens Boots Alliance (WBA) -) posted weaker-than-expected fiscal-fourth-quarter earnings and issued a muted outlook for near-term profits, while Pfizer (PFE) -) slashed its full-year profit forecast late Friday citing weakening demand for its Covid vaccines and treatments.
Rite Aid said in a Monday Securities and Exchange Commission filing that it sees 2024 revenues in the region of $17.2 billion, based oi its Chapter 11 turnaround plan, with adjusted earnings of around $504 million.
Rite Aid shares were marked 5.6% lower from Friday's closing levels in pre-market trading to indicate an opening bell price of $61 cents per share.
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