Example Of Case Study On Rite Aid Corp

Rite Aid Corporation is located in the United States of America and is a drugstore chain with its name published in Fortune 500 company league. The company has its headquarter located in Cumberland County, Pennsylvania. It is considered to be the third largest drugstore in the country and the largest chain in the East Coast region. The company began its operations in 1962 with the launch of one store with a different name. After few years of tremendous growth, the company became a public company in the year 1968. The company is now traded on the NY Stock Exchange with total sales of more than US$ 25 billion in 2014.
For almost five years in a row, the Rite Aid Corporation has failed to demonstrate any positive earnings in its annual finances despite the tough competition it faces from the retail pharmacy industry. This persistently under-performance is the result of inefficiency showed during business operation, inappropriate strategic choices and mismanagement on the financial level by the company itself. The Rite Aid Corporation has been unable to correspond to many acquisitions that have lately occurred and synergize with it, control the overhead costs and grow its profitability. On top of it the corporation is overly burdened by its leveraged capital structure and a balance sheet that does not function properly. This is because Rite Aid Corporation supported acquisitions that were considerably larger in size for the company to handle and were unsuccessful in the long term. Even though, the company has been able to turn around some of the declining facts, but even then the Rite Aid Corporation is close to becoming insolvent.
The reason for approaching the insolvency level is that the company’s cash flows are insufficient to pay for the preferred dividends, repay principal amounts of investors or even cover the basic capital expenditures that are essential to continue business operations. Additionally, the debt maturities are impeccably high, and these will turn out to be a major problem in the future. Hence, when Rite Aid performance is benchmarked against how its competitors are performing in the retail pharma industry, there is a huge performance gap that is witnessed.
The Rite Aid Corporation has contributed to declines in shareholder value due to its aggressive and unsuccessful acquisition strategy that turned out to negatively impact the company’s goodwill on a broader scale. Hence, when the performance measures are evaluated that trajectory growth rate has deviated drastically to what should have been the actual performance rate of the company. One of the most alarming situation is that the company’s Board of Directors has shown no concern to challenge the decisions senior management has been taking or intervene on behalf of influential stakeholders in order to bring some meaningful change in the company’s performance.
Even though the long-term situation of the company is gloomy, it is wise to say that Rite Aid still maintains some major market share and has tremendous capability to generate cash flows despite the fact that it has experienced operational inefficiency. Despite the fact, that the company has failed to operate for the past five years the top executives and Board of Directors have been unable to take appropriate measures to improve the performance. It is recommended that Rite Aid Corporation must apply for the prepackaged bankruptcy with three main objectives: improve the balance sheet, optimize on retail operations and also revamp the value chain. This will help in meeting customers needs and design a strategy that would help the company to foster in future.

Reference

Jacob Berry (2013) Restructuring Rite Aid Corporation, http://www.turnaround.org/cmaextras/Restructuring-Rite-Aid-Corp-%28Carl-Marks-2013%29.pdf