Troubled pharmacy chain Rite Aid has filed for bankruptcy protection again, but this time it's looking to sell its stores or shut more of them.
The Philadelphia-based company with about 1,200 drugstores said it commenced voluntary Chapter 11 proceedings in the U.S. Bankruptcy Court for the District of New Jersey. The company is "pursuing a strategic and value-maximizing sale process for substantially all of its assets," it said Monday in a statement.
The pharmacy chain is in active discussions with "multiple interested potential acquirers," according to the statement, with the sale process supported by $1.94 billion in new financing commitments.
Rite Aid said its stores will remain open and operating. But in a letter to customers, the pharmacy operator qualified its statement, saying that "the majority of our stores will remain open and operating for the next few months."
The company declined to comment on how many stores overall it planned to shut. But in the court docket, Rite Aid said, "Any operations or assets the company does not sell through this process will no longer be owned or operated by Rite Aid." In its statement, the company added that it intends to divest or monetize any assets that are not sold through the court-supervised process.
The nation's top drugstore chains — not only Rite Aid but CVS Health and Walgreens Boots Alliance — for the past few years have all been struggling through financial headwinds and closing hundreds of underperforming stores due to shifting consumer habits, lower reimbursement rates, and stiffer competition from rivals such as Amazon and Walmart.
Putting a Band-Aid on problems
In Rite Aid's cases, it first filed for Chapter 11 in October 2023, emerging in September 2024 with about 1,300 drugstores after restructuring and erasing roughly $2 billion in debt. But the business hasn't gone well, according to CEO Matt Schroeder.
"For more than 60 years, Rite Aid has been a proud provider of pharmacy services and products to our loyal customers," he said Monday in a statement. "While we have continued to face financial challenges, intensified by the rapidly evolving retail and healthcare landscapes in which we operate, we are encouraged by meaningful interest from a number of potential national and regional strategic acquirers. As we move forward, our key priorities are ensuring uninterrupted pharmacy services for our customers and preserving jobs for as many associates as possible.”
In a court filing, Rite Aid said it will seek the best offers for its assets and "initiate store closing sales" at its remaining retail locations and warehouses, according to The Philadelphia Inquirer.
With its prior bankruptcy, Rite Aid essentially only put a Band-Aid on its problems, according to Neil Saunders, a retail analyst and managing director at analytics firm GlobalData.
"The second bankruptcy of Rite Aid comes as no real surprise," Saunders said Monday in a note. "The first bankruptcy did little to resolve the chain’s issues, and it has been teetering on the edge of survival for quite some time. .... It is currently in the position of not being able to secure enough inventory to keep shelves stocked. This in turn deters customers which reduces sales and squeezes cash flow. Sadly, the chain has now reached the bottom of this vicious cycle and bankruptcy is the only route available to it."
Rite Aid, declining to respond to Saunders' remarks, said during the Chapter 11 process its customers can continue to access pharmacy services and products in stores and online.
"In connection with the sale process and court-supervised proceedings, the company is working to facilitate a smooth transfer of customer prescriptions to other pharmacies," the pharmacy operator said. "Rite Aid employees assisting with this process will continue to receive pay and benefits."
Cherry picking stores
Saunders expects Rite Aid to have mixed interest in its drugstores.
"Cutting jobs and overheads will only provide temporary relief during Chapter 11, which is why the business is hoping to find a buyer." he said. "The problem here is that there are no ideal suitors. Walgreens, which would once have jumped at the chance to make a deal, is in no position to be snapping up other chains. CVS is in a process of consolidation, so is unlikely to want to add a fairly broken pharmacy to its roster. There are wildcards, such as Amazon, which could at least buy the Seattle native Bartell Drugs subsidiary. But this is a long shot."
The most likely outcome is that "other chains will cherry pick Rite Aid stores," according to Saunders.
"Some of these are in rural locations where the chain has more of a captive audience," he said. "However, this route would not necessitate a wholesale purchase of the brand or its assets."
Rite Aid, with its new financing from existing lenders and cash from operations, said it expects to have sufficient funding during the sale and court-supervised process.
In March, Walgeens took a different approach than Rite Aid in order to mount a turnaround. It forged an agreement to go private in a $10 billion buyout deal with Sycamore Partners.
For the record
Paul, Weiss, Rifkind, Wharton & Garrison is serving as legal adviser, Guggenheim Securities is serving as investment banker, and Alvarez & Marsal is serving as financial adviser to the company. Joele Frank, Wilkinson Brimmer Katcher is serving as the company's strategic communications adviser.