Rite Aid (RAD) stock fell more than 50% Friday after The Wall Street Journal reported the retail pharmacy is preparing to file for Chapter 11 bankruptcy as it faces mounting costs related to opioid lawsuits.
A source familiar with the matter confirmed to Yahoo Finance that bankruptcy planning is underway, with part of that plan likely to include shuttering more than 400 stores.
Asked about bankruptcy preparations on Friday, Rite Aid said, “We do not comment on rumors and speculation.”
Over the past year, the company’s stock has lost 90% of its value. The company’s market cap as of Friday stood at $41 million, Yahoo Finance data showed.
In a statement to Yahoo Finance, Rite Aid said: “We have closed 239 stores since 2021. Like all retail businesses, we regularly review each of our locations to ensure we are meeting the needs of our customers, communities and the overall business.”
In 2022, the company closed a planned 145 stores, with more expected this year. In the latest quarter ended June 3, Rite Aid closed 27 stores. As of June 3, it operated 2,284 pharmacy locations.
The preparations come after the company was sued by the US government in April over its failure to detect what the Department of Justice called “red flags” around its filling of prescriptions for opioids and other painkillers.
A bankruptcy filing would list those opioid claimants as unsecured claimants, according to the Journal. Additionally, the bankruptcy could help Rite Aid reject lease payments at stores it plans to close, a common tactic used in retail bankruptcy to limit costs. The Journal also noted Friday the company is facing over a thousand federal lawsuits that were consolidated in Ohio.
In April, Rite Aid’s interim CEO, Elizabeth Burr, said on the company’s earnings conference call in response to a question about opioid litigation, “I think it’s very difficult, as you can imagine, to predict litigation. And all we can tell you is that what we’re facing is very consistent with everybody else in the industry is facing.”
In its annual report filed in May, Rite Aid said, “Although we believe we have adequate sources of liquidity to meet our anticipated requirements for working capital, debt service and capital expenditures through at least the next twelve months, the costs associated with these legal proceedings are impossible to estimate with certainty, could exceed any applicable insurance coverage, and could significantly impact such liquidity.”
Revenue in Rite Aid’s most recent quarter, the first quarter of its fiscal year 2024, fell about 7% to $5.65 billion. Its net loss in the quarter totaled $306 million.