Rite Aid has filed for bankruptcy protection and plans to sell part of its business as it attempts to restructure while dealing with losses and opioid-related lawsuits.
The company said Rite Aid stores will continue to fill prescriptions, and customers will still be able to visit its locations or shop online while it goes through its voluntary Chapter 11 process. But that process also will allow it to speed up its plan to close underperforming stores.
Going through Chapter 11 will help "significantly reduce the company's debt" while helping to "resolve litigation claims in an equitable manner," Rite Aid late Sunday.
Rite Aid Corp. said in its federal bankruptcy filing that it runs more than 2,000 stores. Most of its locations are on the East and West Coasts.
The Philadelphia company, which is marking its 60th year in business, has posted annual losses for several years and has been cutting costs and closing stores as it dealt with long-standing financial challenges. It has said it expects a net loss of as much as $680 million in the current fiscal year, which will end next spring.
The company, like its rivals, also faces financial risk from lawsuits over opioid prescriptions. Rite Aid already has reached several settlements, including one announced last year with the state of West Virginia for up to $30 million.
In March, the U.S. Justice Department intervened in a whistleblower lawsuit brought by former employees under the False Claims Act. Federal officials said in a statement that the drugstore chain filled "at least hundreds of thousands" of illegal prescriptions for drugs including opioids.
Rite Aid called the government's claims "hyperbolic" in a subsequent motion to dismiss. The company said facts alleged in the case actually showed it exceeded regulatory requirements for diversion control.
Drugstores also have been dealing with several issues that frustrate customers. They've handled prescription drug shortages, and they have struggled to fill their stores with enough pharmacists and technicians to run the pharmacies. Rivals CVS and Walgreens both have dealt with walkouts by pharmacy employees concerned about their growing workloads and lack of help.
The stores also have had to weather tight prescription reimbursement and waning COVID-19 vaccine and testing business in recent quarters. Plus online competitors like the retail giant Amazon have hurt sales of consumer goods found outside the pharmacy areas of their stores.
Rite Aid's larger competitors like CVS and Walgreens, which each run several thousand more locations, have moved more aggressively into health care, opening clinics and adding other sources of revenue.
Deutsche Bank analyst George Hill said in an August note that Rite Aid operates on a much thinner profit margin than its competitors and while it can pay costs to service its debt, it won't be able to cover principal payments "based on the current trajectory of the business."
The company's filing in U.S. Bankruptcy Court in New Jersey listed $8.6 billion in total debts and $7.6 billion in assets.
Rite Aid said Sunday that it had reached an agreement with some key creditors on a financial restructuring plan to cut its debt. The company also said it obtained $3.45 billion in fresh financing from some of its lenders, which will help support the company through the Chapter 11 process.
Rite Aid says it does not know yet which stores it will close, but it will transfer workers to other Rite Aid locations where possible.
Gabelli Funds portfolio manager Jeff Jonas expects the company to close several hundred locations. He noted that this could ease some pressure on drugstores struggling to find workers.
"All those people will get new jobs immediately," he said. "You hate to say that someone's bankruptcy is a positive, but it kind of is."
Rite Aid also said Sunday that it reached a deal to sell its small pharmacy benefits manager, Elixir, to MedImpact Healthcare Systems. Elixir runs prescription drug coverage and a specialty pharmacy among other services.
Rite Aid said MedImpact will serve as the "stalking horse bidder" in a court-supervised sale process.
The company also said that Jeffrey Stein, who heads a financial advisory firm, was named CEO, replacing interim leader Elizabeth Burr. She had replaced Heyward Donigan, who left in January.
Rite Aid said Stein has experience working with companies that are undergoing financial restructuring.
A few years ago, Rite Aid propped up its share price with a 1-for-20 reverse stock split that took more than a billion shares off the market. But the share price has slid for most of this year and tumbled back below $1 in August. The stock last traded at roughly 65 cents.
Earlier this month, Rite Aid notified the New York Stock Exchange that it was not in compliance with listing standards. During a grace period, the company's stock continues to be listed and traded.
Walgreens attempted to buy Rite Aid for about $9.4 billion in a deal announced in 2015. But the larger drugstore chain scaled back its ambition a couple years later and bought only a chunk of Rite Aid, around 1,900 stores, to get the deal past antitrust regulators.
In 2018, Rite Aid shares plunged after the company called off a separate merger with the grocer Albertsons, which is currently trying to merge with another grocer, Kroger.
Murphy reported from Indianapolis. Kurtenbach reported from Bangkok. AP Business Writer Josh Funk also contributed to this report from Omaha, Nebraska.