• Drugstore chain Rite Aid filed for Chapter 11 bankruptcy protection in New Jersey.
• It also appointed Jeffrey Stein as its new CEO to steer the company through its restructuring plan.
• The company has been grappling with slowing sales, mounting debt and lawsuits alleging it contributed to the nation's opioid epidemic.
• Rite Aid faces steep competition from its rivals, which have leaned into health-care models to offset losses from their retail businesses.

Rite Aid filed for Chapter 11 bankruptcy protection in New Jersey on Sunday and said it would begin restructuring to significantly reduce its debt.

The company said it reached a deal with creditors on a restructuring plan that includes evaluating its retail footprint and closing underperforming locations.

Rite Aid also said lenders agreed to extend $3.45 billion in new funding to "provide sufficient liquidity" as it embarks on its restructuring plan.

The beleaguered drugstore chain has been grappling with slowing sales, mounting debt and a slew of lawsuits that allege the company helped fuel the nation's opioid epidemic by oversupplying painkillers. 

During its most recent quarter ended June 3, revenue fell to $5.65 billion, down from $6.01 billion in the year-ago period. Its net loss widened to $306.7 million, or $5.56 per share, compared with a net loss of $110.2 million, or $2.03 per share, in the same period a year earlier. 

As a result of the rough quarter, Rite Aid lowered its fiscal 2024 outlook and warned investors it expects to lose between $650 million and $680 million for the full year, which is slated to end in late February.

Rite Aid's retail pharmacy segment has long been a key growth driver for the company, but that hasn't been enough to offset its mounting losses.

Plummeting demand for Covid vaccines and testing, a membership reduction in the company's prescription drug plan, and a loss of customers from its Elixir pharmacy benefits business have contributed to a slowdown in revenue at the struggling drug chain.

On Sunday, the company appointed Jeffrey Stein as its new chief executive officer and chief restructuring officer as well as a member of its board. Elizabeth Burr had been serving as interim CEO since January and will remain on the company's board.

Rite Aid Chairman Bruce Bodaken said in a statement: "Jeff is a proven leader with a strong track record of guiding companies through financial restructurings. We look forward to benefitting from his contributions and leveraging his expertise as we strengthen Rite Aid's foundation and position the business for long-term success."

Stein said he has "tremendous confidence in this business and the turnaround strategy that has been developed in recent months."

An existential crisis for drugstores

Drugstores like Rite Aid have faced an existential crisis as shoppers increasingly turn to retailers like Amazon, Target, Walmart and others for toothpaste, shampoo and other staples — often at a cheaper price and with the convenience of delivery to customers' doors.

Rite Aid has also struggled to keep up with its bigger rivals, CVS and Walgreens, as those companies have pivoted to a health-care focus and made sizable investments to match.

CVS has opened in-store Minute Clinics, which resemble walk-in urgent-care facilities, and turned more of its stores into HealthHubs, or locations with a longer list of medical services. 

It has expanded its reach in health care by acquiring Caremark, one of the largest pharmacy benefits managers, health insurer Aetna and, most recently, primary-care company Oak Street Health.

Walgreens has also struck pricey deals to expand its reach in health care. It's become the majority owner of primary-care company VillageMD and plans to open up doctor offices next to many of its drugstores. 

Newer — and well-capitalized — health-care entrants have also intensified the competitive threat. Amazon closed its acquisition of primary-care provider One Medical in a $3.9 billion deal earlier this year and acquired online pharmacy PillPack in 2018. Walmart, which has pharmacies in its thousands of stores, has opened a growing network of medical clinics in parts of the country.

The opioid crisis

Rite Aid's financial position and competitive disadvantages are compounded by the many lawsuits it's facing that allege the company contributed to the nation's opioid epidemic by knowingly filling prescriptions for painkillers that did not meet legal requirements.

The Department of Justice filed a suit against Rite Aid earlier this year, claiming that it violated the Controlled Substances Act by filling thousands of unlawful prescriptions for controlled substances such as fentanyl and oxycodone.

Rite Aid has asked a court to dismiss the department's lawsuit and denied allegations it filled unlawful opioid prescriptions.

— CNBC's Christine Wang contributed to this report.