Arby's Franchisee Files For Chapter 11 Bankruptcy
By Julie LIttman of RestaurantDive
Miracle Restaurant Group, a 25-unit Arby’s franchisee, declared Chapter 11 bankruptcy on June 20, according to court filings.
The company, which has been an Arby’s operator since 2005, has restaurants in Illinois, Indiana, Texas, Mississippi and Louisiana, Donald Moore, manager and member of Miracle Restaurant Group, said in a court filing.
In addition to the impact of the COVID-19 pandemic, the operator cited inflationary pressures, negative same-store sales, an inability to sell underperforming locations and the failure of the IRS to timely refund over $3 million to the company as part of Employee Retention Tax Credits as reasons for filing for bankruptcy protections, Moore said.
This isn’t the first time the chain has filed for Chapter 11. In 2010, the company operated over 60 stores, but filed for bankruptcy protection under Chapter 11, leading to closures of a number of stores. Creditors were paid in full under its restructuring plan, Moore said in the court filing.
Economic conditions appear to be more dynamic this time around for the operator. Negative same-store sales compressed profit margins that have not helped cover fixed costs. Price increases also couldn’t adequately compensate for a rise in labor and commodity expenses, resulting in an erosion of its cash position, Moore said.
Restaurants developed over the last three years also have had disappointing store sales.
“The negative same store sales and lower than anticipated sales from newer stores have resulted in certain stores that operate at extremely low or (at times) negative cash flow on a weekly and monthly basis,” Moore said.
To help offset its declining financial situation, the operator approached its landlords and Arby’s for relief, but the responses were not enough to keep the franchisee from bankruptcy, Moore said.
Miracle also tried to sell some of its Texas and Chicago-land area locations, but has not been able to secure offers. Moore said overall declines in Arby’s systemwide same-store sales and low sales to fixed cost ratios of certain Miracle restaurants contributed to the bankruptcy. Last September, it sold three stores in Indiana and used those proceeds to pay down debt.
As part of its bankruptcy filing, the operator plans to sell seven Texas stores, eight Illinois stores and two Indiana stores and to focus on operating its Louisiana and Mississippi stores leaving it with eight remaining locations, Moore said. Miracle has retained Peak Franchise Capital to advise in marketing the sale of these restaurants.
The company said it has 200 to 999 estimated number of creditors, $1 million to $10 million in assets and $1 million to $10 million in liabilities in a court filing.
Bankruptcies have been on the rise among QSR franchisees. Since the start of 2023, franchisees of Burger King, CKE, McDonald’s, Popeyes, Subway and Wendy’s have sought bankruptcy protection. Operators have been under increased financial pressure due to rising labor and food costs, difficulty raising capital to fund expansions or remodels to help drive sales and falling consumer traffic, among other factors.