Overview

We are a healthcare company with a retail footprint, providing our customers and communities with a high level of care and service through various programs we offer through our two reportable business segments, our Retail Pharmacy segment and our Pharmacy Services segment. We accomplish our goal of delivering comprehensive care to our customers through our retail drugstores and our PBM, Elixir. We also offer fully integrated mail-order and specialty pharmacy services through Elixir Pharmacy. Additionally, through Elixir Insurance ("EI"), Elixir also serves seniors enrolled in Medicare Part D. When combined with our retail platform, this comprehensive suite of services allows us to provide value and choice to customers, patients and payors and allows us to compete in today's evolving healthcare marketplace.

Retail Pharmacy Segment

Our Retail Pharmacy segment sells brand and generic prescription drugs and provides various other pharmacy services, as well as an assortment of front-end products including health and beauty aids, personal care products, seasonal merchandise, and a large private brand product line. Our Retail Pharmacy segment generates the majority of its revenue through the sale of prescription drugs and front-end products at our over 2,300 retail pharmacy locations across 17 states and through our e-commerce platform available at www.riteaid.com. We replenish our retail stores through a combination of direct store delivery of pharmaceutical products facilitated through our pharmaceutical Purchasing and Delivery Agreement with McKesson, and the majority of our front-end products through our network of distribution centers.

Pharmacy Services Segment

Our Pharmacy Services segment provides a fully integrated suite of PBM offerings including technology solutions, mail delivery services, specialty pharmacy, network and rebate administration, claims adjudication and pharmacy discount programs. Elixir also provides prescription discount programs and Medicare Part D insurance offerings for individuals and groups. Elixir provides services to various clients across its different lines of business, including major health plans, commercial employers, labor groups and state and local governments, representing approximately 2.3 million covered lives, including approximately 0.7 million covered lives through our Medicare Part D insurance offerings. Elixir continues to focus its efforts and offerings to its target market of small to mid-market employers, labor unions and regional health plans, including provider-led health plans and government sponsored Medicaid and Medicare plans.

Restructuring

Beginning in Fiscal 2019, we initiated a series of restructuring plans designed to reorganize our executive management team, reduce managerial layers, and consolidate roles. In March 2020, we announced the details of our RxEvolution strategy, which includes building tools to work with regional health plans to improve patient health outcomes, rationalizing SKU's in our front-end offering to free up working capital and update our merchandise assortment, assessing our pricing and promotional strategy, rebranding our retail pharmacy and pharmacy services business, launching our Store of the Future format and further reducing SG&A and headcount, including integrating certain back office functions in the Pharmacy Services segment both within the segment and across Rite Aid. Other strategic initiatives include the expansion of our digital business, replacing and updating the Company's financial systems to improve efficiency, and movement to a common client platform at Elixir. In April 2022, we announced further strategic initiatives to reduce costs through the closure of unprofitable stores, reduce corporate administration expenses, improve efficiencies in worked payroll and other store labor costs, engage in a comprehensive review of purchasing and other business processes in both the Retail Pharmacy and Pharmacy Services segments in order to identify areas of opportunity, as well as expense reductions at our Pharmacy Services segment. These and future restructuring activities are expected to provide future growth and expense efficiency benefits. There can be no assurance


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that our current and future restructuring charges will achieve the cost savings and remerchandising benefits in the amounts or time anticipated.

Impact of COVID-19

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. The COVID-19 pandemic has severely impacted the economies of the United States and other countries around the world.

Since the onset of the COVID-19 pandemic, Rite Aid has been on the front lines of providing communities with essential care, services and products, including the administration of COVID-19 testing and vaccines. We have taken numerous steps to ensure that Rite Aid can continue providing these vital services during this time of great need, including hiring additional full and part-time associates to support our stores and distribution center teams, providing our front line associates with our Hero Pay and Hero Bonus programs and instituted a Pandemic Pay policy that ensures associates are compensated if diagnosed with the virus or quarantined due to exposure. We also implemented safety protocols to keep our associates and customers safe, and transitioned our office-based associates to a remote work environment. Our strong local presence and scale in communities in our markets enables us to play a central role in the response to COVID-19, as well as provide seamless support for our customers wherever they need it; at our stores and at their homes through our delivery services.

The COVID-19 pandemic had a significant impact on our operating results for the thirteen and twenty-six week periods ended August 27, 2022 and August 28, 2021 and will continue to have an impact on several factors underlying our operating results and liquidity in fiscal 2023. Those factors include the number of individuals that receive a COVID-19 vaccine or booster; demand for COVID-19 testing; the timing and extent to which elective procedures return to pre-pandemic levels; the demand for flu and other immunizations and the length and severity of the upcoming cough, cold and flu season.

Overview of Financial Results

Our net loss for the thirteen week period ended August 27, 2022 was $331.3 million or $6.07 per basic and diluted share compared to a net loss of $100.3 million or $1.86 per basic and diluted share for the thirteen week period ended August 28, 2021. Our net loss for the twenty-six week period ended August 27, 2022 was $441.5 million or $8.11 per basic and diluted share compared to a net loss of $113.4 million or $2.10 per basic and diluted share for the twenty-six week period ended August 28, 2021. The increase in net loss for the thirteen and twenty-six week periods ended August 27, 2022 was due primarily to a current quarter charge of $252.2 million, or $4.62 per share, for the impairment of goodwill related to the Pharmacy Services segment. Net loss was also impacted by higher facility exit and impairment charges driven by the Company's previously announced store closures. These items are partially offset by a gain on our repurchase of certain bonds at a discount, a gain on sale of assets resulting primarily from sale leasebacks of two distribution centers and script file sales resulting from the store closures.

Our Adjusted EBITDA for the thirteen and twenty-six week periods ended August 27, 2022 was $78.5 million or 1.3% of revenues and $178.7 million or 1.5% of revenues, respectively, compared to $106.2 million or 1.7% of revenues and $245.0 million or 2.0% of revenues, respectively, for the thirteen and twenty-six week periods ended August 28, 2021.

The decrease in Adjusted EBITDA for the thirteen week period ended August 27, 2022 was due to a decline in the Retail Pharmacy segment, partially offset by an increase in the Pharmacy Services segment. Adjusted EBITDA decreased $37.9 million in the Retail Pharmacy segment due primarily to a decrease in gross profit, partially offset by a decrease in selling, general and administrative expenses ("SG&A") of $45.0 million. Adjusted EBITDA in the Pharmacy Services segment increased $10.3 million due primarily to an increase in gross profit resulting from improved network performance, increases in rebates, and reductions in SG&A expense, partially offset by the decline in revenues associated with lost clients.

The decrease in Adjusted EBITDA for the twenty-six week period ended August 27, 2022 was due to declines in both the Retail Pharmacy segment and the Pharmacy Services segment. Adjusted EBITDA decreased $59.1 million in the


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Retail Pharmacy segment due primarily to a decrease in gross profit, partially offset by a decrease in SG&A of $85.4 million. Adjusted EBITDA in the Pharmacy Services segment decreased $7.2 million due primarily to the decline in revenues associated with lost clients, partially offset by higher retained rebates from our new rebate aggregation arrangement.

Please see the sections entitled "Segment Analysis" and "Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures" below for additional details.

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