Why Rite Aid's Shares Crashed 19% in September

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What happened

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Rite Aid (NYSE: RAD) and Walgreens Boots Alliance (NASDAQ: WBA) were forced by regulators to reduce the number of stores Rite Aid is selling to Walgreens and that news, plus Rite Aid's lackluster quarterly financial results, caused Rite Aid's shares to lose 19% of their value last month, according to S&P Global Market Intelligence.

So what

Rite Aid had been trying to cut a deal to sell itself lock, stock, and barrel to Walgreens. However, regulators balked at that proposal earlier this year, forcing the two companies to come up with a new plan. Instead, Walgreens agreed to acquire 2,186 Rite Aid stores and three distribution centers for $5.18 billion in cash.

Unfortunately, that plan also failed to pass muster with regulators. In order to convince them to sign off on the deal, Walgreens had to reduce the number of stores it's acquiring to 1,932. As a result, Rite Aid will only collect $4.375 billion in cash. 

Rite Aid announced the restructured deal on Sept. 19, which coincides with a peak in Rite Aid's share price last month. However, that wasn't the only bad news that Rite Aid reported in September.

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Management also rolled out quarterly results that were shy of what investors wanted to see. The company's revenue last quarter slipped 4.4% to $7.68 billion and after adjusting for one-time items, including a $325 million termination fee paid to it by Walgreens, lost $0.01 per share. 

Now what

Rite Aid blamed the anemic performance on the ongoing disruption caused by its M&A uncertainty. As a result, it filled fewer prescriptions, which caused foot traffic and front-end sales to decline. Overall, its same-store sales decreased 3.4% year over year.

It's been a horrible run for the embattled retail pharmacy chain, but perhaps there's hope for better times ahead. The company expects to finish transitioning stores to Walgreens early next year, and the cash influx from Walgreens will go a long way toward reducing its $7 billion in debt and $100 million per quarter in interest expense.

Easier comparisons next year, plus a renewed focus on kick-starting business that's inspired by new management, could position shares to trade higher. Of course, success depends largely on Rite Aid's execution of a strategy that regains consumer confidence and, arguably, Rite Aid's track record when it comes to executing isn't very good.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.