The stock of Rite Aid (RAD) experienced a significant decline of over 50% on Friday following a report by The Wall Street Journal. The report stated that the retail pharmacy is making preparations to file for Chapter 11 bankruptcy due to increasing expenses associated with opioid lawsuits.
Yahoo Finance has received confirmation from a reliable source that bankruptcy plans are currently being developed, and it is anticipated that around 400 stores will be shut down as part of this strategy.
Rite Aid declined to comment on rumors and speculation regarding bankruptcy preparations when asked on Friday.
According to Yahoo Finance data, the company’s market capitalization, as of last Friday, was $41 million. However, over the past year, the company’s share value has plummeted by 90%.
Rite Aid has announced that it will be closing 239 stores by 2021. The company stated to Yahoo Finance that, similar to other retail businesses, they consistently evaluate their various locations to ensure optimal customer service, meeting the demands of communities and the overall success of the business.
By the end of June 3, 2022, Rite Aid had shut down a total of 145 stores as part of their planned closures for the year. Additionally, during the latest quarter that concluded on June 3, the company closed down 27 more stores. Rite Aid currently operates 2,284 pharmacy locations.
Following a lawsuit filed by the US government in April, the company is now taking measures to prepare itself for future incidents. The lawsuit accused the company of neglecting to identify “red flags” related to the fulfillment of opioid and painkiller prescriptions, as stated by the Justice Department.
According to the Journal, the individuals claiming damages from opioids will be categorized as unsecured claimants in the bankruptcy filing. Furthermore, Rite Aid may take advantage of bankruptcy proceedings to reduce lease payments for stores it intends to shut down, a strategy frequently employed in retail bankruptcies to minimize expenses. The Journal also reported on Friday that the company is confronted with over a thousand federal lawsuits, which have been consolidated in Ohio.
On December 21, 2022, in Los Angeles, California, a Rite Aid store proudly showcases the Rite Aid logo outside. (Photo by Mario Toma/Getty Images)
During the company’s earnings conference call in April, Elizabeth Burr, Rite Aid’s interim CEO, addressed concerns about opioid litigation by stating, “Anticipating litigation is a challenging task, as you can imagine. However, we can assure you that the challenges we are currently facing align with those experienced by others in the industry.”
The narrative proceeds.
Rite Aid stated in its May annual report that, despite having sufficient resources to fulfill its anticipated requirements for working capital, debt service, and capital expenditures over the next year, it acknowledges the inability to accurately determine the expenses associated with ongoing legal proceedings. These costs might surpass any applicable insurance coverage and potentially have a noteworthy effect on the company’s liquidity.
In the first quarter of its fiscal year 2024, Rite Aid witnessed a decline of close to 7% in revenue, amounting to $5.65 billion. Furthermore, the company incurred a net loss of $306 million during this quarter.
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