RED Lobster revealed the true cause of its bankruptcy filing and it wasn’t just one of the culprits.
The seafood restaurant chain listed details of its struggle in bankruptcy documents, citing debt, too many locations and competition as some.
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The bankruptcy filing officially occurred on Sunday night, after 56 years of activity.
Red Lobster CEO and corporate reconstruction expert Jonathan Tibus explained the reason for the request.
The order was 124 pages long and came at a time when Red Lobster was $1 billion in debt.
The company plans to sell its business to lenders to receive financing and remain open.
“Recently, the debtors have faced a number of financial and operational challenges,” Tibus said in the bankruptcy filing, USA Today reported.
‘BOLLED FOOTPRINT’
Red Lobster admitted that it was unable to keep up with the number of locations it had in the US.
“Including a difficult macroeconomic environment, a bloated and underperforming restaurant footprint, failed or ill-advised strategic initiatives and increased competition in the restaurant industry,” Tibus said.
Tibus continued and explained how sales and customers have plummeted recently, which also had a big impact on the bankruptcy decision.
“Red Lobster’s annual guest count has decreased approximately 30% since 2019 and has only marginally improved from the pandemic levels observed during 2020 and 2021,” Tibus said.
“Although Red Lobster’s net sales increased approximately 25% from 2021 to 2023 (which itself represents modest recoveries following the COVID-19 pandemic).
“Net sales began to show a significant decline during the last twelve months.”
Financial difficulties also caused Red Lobster to announce it would close dozens of stores just days before filing for bankruptcy.
Red Lobster now has 551 restaurants in the U.S., 27 in Canada and 27 franchises in Mexico, according to the filing.
It plans to keep these locations open, streamlining its operations and resorting to bankruptcy proceedings.
“This restructuring is the best path forward for Red Lobster. It allows us to face various financial and operational challenges and emerge stronger and more focused on our growth.”
LOBSTER WITH FIGHT
Rumors about Red Lobster considering bankruptcy began in April after it was leaked that a law firm had consulted with the company to do so.
Red Lobster said it lost $11 million from its Endless Shrimp promotion in November 2023, which many people suggested impacted sales.
In 2023, Red Lobster also said it had a loss of $12.5 million in the fourth quarter.
Shortly after these issues arose, one of Red Lobster’s former major shareholders said he would leave due to a lack of improvements in February.
“Sustained industry headwinds, higher interest rates and rising materials and labor costs have impacted Red Lobster’s business, resulting in prolonged negative financial contributions to the company and its shareholders,” said Thiraphong Chansiri, CEO of Thai Union Group, in a statement. Press release at the time.
“After a detailed review, the board of directors has determined that Red Lobster’s ongoing financial needs no longer align with our capital allocation priorities and therefore the company is seeking to exit minority investment.”
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This story originally appeared on The-sun.com read the full story
