Reputable reports indicate that the iconic American store is getting set to file for bankruptcy. The past year has been challenging for large American retail chains. Discount retailers such as Tuesday Morning, Christmas Tree Shops, and Bed Bath & Beyond are most affected.
These businesses collapsed due to a lack of product sales. All three attempted Chapter 11 reorganization, but constrained financial markets and unwilling vendors forced them into Chapter 7 liquidation.
To survive a Chapter 11 filing, a company must locate a funding source and convince its suppliers to continue shipping goods. It makes no difference if a business is open if its shelves are empty because it will continue to incur expenses but will not be able to generate any revenue.
Not just a lack of capital leads many companies to liquidate. Suppliers are unwilling to extend credit because they fear not being paid for the products they deliver.
The national pharmacy chain is reportedly preparing a Chapter 11 petition to restructure its $3.3 billion debt. The filing would also provide some protection against litigation alleging that the company illegally filled hundreds of thousands of prescriptions for opioids.
Rite Aid has been incurring losses.
Recent quarter sales for Rite Aid decreased to $5.8 billion from $6 billion. The chain’s quarterly loss of $306 million was roughly three times that of the same period one year prior.
Elizabeth Burr, interim chief executive officer, attempted to portray this as a positive 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 more than 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 stated that the chain must undergo some adjustments, but she attempted to maintain a long-term perspective.
“To help mitigate this, we will reduce [selling, general, and administrative] and capital expenditures throughout the remainder of the year,” she explained.
Importantly, we made significant progress on business-wide turnaround initiatives, and we continue to believe we are on pace to achieve adjusted Ebitda growth in fiscal years 2025 and 2026.
Burr did not mention the impending opioid litigation in either the earnings release or the subsequent call with analysts to discuss the results.
Rite Aid prepares to file for Chapter 11
A bankruptcy petition would protect Rite Aid against the numerous pending lawsuits.
RetailDive reported that Rite Aid has not yet settled allegations that it knowingly oversupplied prescription analgesics, and a bankruptcy filing would halt federal, state, and local claims against the retailer.
The move would also likely consolidate thousands of claims against the pharmacy retailer, allowing them to be resolved in a single location.
On Credit Risk Monitor’s Frisk rating scale, RiteAid scored 1 in June. This is the lowest conceivable score on the scale, and according to the company, 96% of all bankrupt companies have a Frisk score of 5 or less at least three months before filing for bankruptcy.
Rite Aid declined to comment on the RetailDive article, describing it as “rumors and speculation.”