Embattled seafood chain Red Lobster is looking for a buyer to avoid filing for bankruptcy, CNBC reports.
The company has been considering filing for bankruptcy to restructure its debt and get out of a number of expensive, long-term leases, but has also been looking for a buyer in recent months, people familiar with the matter told CNBC.
At least one company had expressed interest in buying the chain, but the deal never materialized.
It’s unclear how the chain will ultimately resolve its financial woes. Red Lobster could find a buyer, declare bankruptcy, or let its lenders take control of the company.
Even if Red Lobster were to find a buyer, it would be difficult to avoid filing for Chapter 11 because the company is exiting many leases and contracts are difficult to break outside of bankruptcy, sources said. said the people.
Bloomberg first reported last week that Red Lobster was considering filing for Chapter 11. Red Lobster did not respond to a request for comment.
The venerable chain, known for its Cheddar Bay biscuits and unlimited shrimp, is looking for a new home at a time when major restaurant groups are cautious as capital is expensive and the broader casual dining segment lags behind. looking for.
Over the past decade, amid ownership changes, Red Lobster has taken on debt and entered into numerous long-term leases across its more than 700 stores, which weighed heavily on its balance sheet.
Jonathan Tibbs, a managing partner at advisory firm Alvarez & Marsal, was recently named CEO of Red Lobster after a number of executives left. The sales figures are making it difficult for the chain to rebuild.
Turnaround experts have decades of experience working with struggling restaurant chains, many of which were smaller than Red Lobster. Tibbs did not respond to requests for comment.
This year marks the 10th anniversary Darden Restaurant Red Lobster sold after investors urged the company to be sold. Private equity firm Golden Gate Capital bought the seafood chain for $2.1 billion and began restructuring it.
Thai Union Group, a seafood supplier and longtime Red Lobster retailer, bought a minority stake in the chain in 2016. With the help of an investor group called Seafood Alliance, it bought out the remaining stake in Golden Gate in 2020, months after the pandemic began.
Unlike many restaurant companies, Red Lobster survived the pandemic without filing for bankruptcy. However, long-time leader Kim Lobdorp stepped down in 2021, starting a revolving door of CEOs.
Kelly Valard took the top job in 2021, but resigned a year later to become Denny’s CEO. Horace Dawson was hired more than a year after Valade left the company and held the job for about six months before the company appointed Tibbs as chief executive in March.
But Red Lobster’s problems are bigger than the leadership vortex. The broader casual dining segment has struggled for nearly two decades with competition from fast-casual chains like Panera Bread and Chipotle Mexican Grill. The pandemic has exacerbated the problem, especially hitting full-service restaurants like Red Lobster.
The seafood chain is also struggling with self-inflicted wounds, especially its disastrous “Infinite Shrimp” promotion. Last year, the company changed its offer from once a week to every day in a bid to boost sluggish sales in the second half of the year.
But the offer stimulated business too much and hurt Red Lobster’s profits, as diners sought cheaper deals. As a result, Red Lobster reported a loss of $11 million in the third quarter of its fiscal year, and in the following quarter he reported a loss of $12.5 million.
In January, Thai Union Group announced plans to sell its stake in Red Lobster.
