Restructuring

3 Months Ended

Jun. 03, 2023

2. Restructuring

Beginning in fiscal 2019, the Company initiated a series of restructuring plans designed to reorganize its executive management team, reduce managerial layers, and consolidate roles. In March 2020, the Company announced the details of its strategy, which includes building tools to work with regional health plans to improve patient health outcomes, rationalizing SKU’s in its front-end offering to free up working capital and update its merchandise assortment, assessing its pricing and promotional strategy, rebranding its retail pharmacy and pharmacy services business, launching its 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 the enterprise. Other strategic initiatives include the expansion of the Company’s 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, the Company 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 the Pharmacy Services Segment. In December 2022, the Company announced a new multi-year performance acceleration program, which allows it to fast-track initiatives that will improve sales, script volume and operating margins, and free up cash. The Company is partnering with a leading consulting firm

that has worked with several Fortune 150 firms to execute the turnaround model. This program has given the Company visibility into the profitability opportunities it can drive over the next three years by focusing on improvements and growth in its core businesses. These and future restructuring activities, including those designed to enhance the Company’s liquidity and capital structure, are expected to provide future growth opportunities, expense efficiency benefits, and potentially reduce its leverage. The Company has engaged in and, at any given time, may further engage in strategic alternatives to recapitalize, refinance or otherwise optimize its capital structure. Any such review or contingency planning could ultimately result in the Company’s pursuing one or more significant corporate transactions or other remedial measures. There can be no assurance as to when or whether the Company will determine to implement any such action, whether such actions will be successful, or the effects the failure to take action may have on its business, including the Company’s ability to achieve its operational, strategic, and financial goals. Additionally, there can be no assurance that the Company’s current and future restructuring charges will achieve the cost savings and remerchandising benefits in the amounts or time anticipated.

For the thirteen week period ended June 3, 2023, the Company incurred total restructuring-related costs of $78,130, which are included as a component of SG&A. These costs are as follows:


	Retail Pharmacy		Pharmacy
	Segment		Services Segment		Total

Restructuring-related costs
Severance and related costs associated with ongoing reorganization efforts^(a)	$	440	$	—	$	440
Professional and other fees relating to restructuring activities^(b)		76,029		1,661		77,690
Total restructuring-related costs	$	76,469	$	1,661	$	78,130

For the thirteen week period ended May 28, 2022, the Company incurred total restructuring-related costs of $22,646, which are included as a component of SG&A. These costs are as follows:


	Retail Pharmacy		Pharmacy
	Segment		Services Segment		Total

Restructuring-related costs
Severance and related costs associated with ongoing reorganization efforts^(a)	$	11,288	$	616	$	11,904
Professional and other fees relating to restructuring activities^(b)		6,083		4,659		10,742
Total restructuring-related costs	$	17,371	$	5,275	$	22,646

A summary of activity for the thirteen week period ended June 3, 2023 in the restructuring-related liabilities associated with the programs noted above, which is included in accrued salaries, wages and other current liabilities, is as follows:


	Severance and related		Professional and
	costs^(a)		other fees ^(b)		Total

Balance as of March 4, 2023	$	7,658	$	42,154	$	49,812
Additions charged to expense		440		77,690		78,130
Cash payments		(2,738)		(33,962)		(36,700)
Balance as of June 3, 2023	$	5,360	$	85,882	$	91,242

(a)	– Severance and related costs reflect severance accruals, executive search fees, outplacement services and other similar charges associated with ongoing reorganization efforts.

(b)	– Professional and other fees include costs incurred in connection with the identification and implementation of initiatives associated with restructuring activities.

The Company anticipates incurring approximately $155,000 during fiscal 2024 in connection with its continued restructuring activities.

RITE AID CORP 10-Q/A