The retail drug chain business continues to be a troubled one.
The nation’s third largest drug chain – Rite Aid – late last month gained approval of a restructuring plan which will allow the beleaguered Philadelphia-based merchant to cut its debt by $2 billion and give control of the company to a group of lenders.
At Walgreens, the country’s second largest pure-play drug retailer, the worries continue after CEO Tim Wentworth said it would close more underperforming drug stores nationally. While Wentworth wouldn’t disclose a specific number, he told The Wall Street Journal that about 25 percent of its remaining stores are not profitable and are being reviewed. This comes on top of the Deerfield, IL-based company closing about 600 stores in the past four years.
Rite Aid’s exit from bankruptcy – which will officially be in about a month – comes nine months after it filed for Chapter 11 protection in October 2023 shortly after it reported a $750 million quarterly loss. In the process, the company, founded by the Grass family in the early 1960s, closed nearly 700 stores (bringing it from approximately 2,000 stores to 1,300 units) and sold its pharmacy benefit company Elixir to MedImpact Healthcare Systems, while also negotiating settlements with its lenders and its largest creditors including McKesson. The exit from bankruptcy will be funded by $2.55 billion in financing provided by its lenders.
The restructuring deal, approved by U.S. Bankruptcy Court Judge Michael Kaplan in Trenton, NJ, also calls for junior creditors as well as individuals and local governments that sued Rite Aid for its role in contributing nation’s opioid epidemic to receive $475 million.
Rite Aid still employs 28,000 associates.
While things are not as bad as at Rite Aid, Walgreens continues trending in that same direction.
Even though the financial performance of parent company Walgreens Boots Alliance improved from a woeful quarter during the same period a year ago, the suburban Chicago-based drug chain lowered its guidance for the remainder of fiscal 2024 to $2.80-$2.95 per share.
Third quarter operating income was $111 million compared to an operating loss of $477 million in the year-ago quarter, an increase of $588 million, which reflects lapping a $431 million non-cash impairment of pharmacy license intangible assets in Boots UK in the year-ago quarter. Adjusted operating income was $613 million, a decrease of 36.3 percent on a constant currency basis reflecting lower sale-leaseback gains and softer U.S. retail and pharmacy performance, partly offset by cost savings initiatives and improved profitability in the U.S. Healthcare segment.
Net earnings in the third quarter were $344 million compared to net earnings of $118 million in the year-ago quarter, an increase of $225 million reflecting higher operating income. Adjusted net earnings were $545 million, down 36.5 percent on a constant currency basis, reflecting lower adjusted operating income.
Those numbers were below Wall Street’s expectations, and the market severely punished the company. Shares of the pharmacy chain plunged nearly 23 percent to $12.19 per share on the earnings announcement (June 27). That number not only marked a 52-week nadir, but also a 27-year low for the drug chain. At presstime, on July 10, WBA’s share price dipped even further to $11.26.
About a week after the earnings release, Sebastian James, who has served as managing director of the company’s UK subsidiary Boots since 2018, announced he would be leaving the company in November, a potential key loss to WBA.
During the company’s quarterly call with financial analysts following the Q3 financial release, Wentworth, who replaced former CEO Rosalind Brewer last October, said: “We continue to face a difficult operating environment, including persistent pressures on the U.S. consumer and the impact of recent marketplace dynamics which have eroded pharmacy margins. Our results and outlook reflect these headwinds, despite solid performance in both our International and U.S. Healthcare segments.”
He added, “We are at a point where the current pharmacy model is not sustainable and the challenges in our operating environment require we approach the market differently. Our customers have become increasingly selective and price sensitive in their purchases.”
