Joe’s Crab Shack Owner To File For Bankruptcy

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The once robust and ubiquitous American restaurant industry continues to slowly disappear. The operator of Joe’s Crab Shack and Brick House Tavern restaurant chains is preparing to file for bankruptcy. The quick and casual dining sector has been facing major decreases in customer traffic, and Ignite Restaurant Group is no exception.

For the first quarter of fiscal 2017, ended April 3, 2017, Ignite Restaurants (Pink Sheets/IRGT) announced that total revenue fell 19.3% year-over-year. Specifically, Joe’s Crab Shack revenue plunged 20.9% year-over-year, while revenue at Brick House decreased 12.4%. The company’s swung to a loss of $3.3 million from a profit of $1.5 million in the same prior-year period.

In addition to falling sale and swinging to a loss, Ignite has total debt of about $121.0 million, including $112.0 million on a term loan set to mature in 2019. It also had $430,000 in cash and equivalents at the start of the year. But nothing has stopped the bleeding and the company continues to burn cash.

The fact that Ignite Restaurants is looking to sell both chains either together or separately shouldn’t come as a big shock. In March, Ignite engaged Alvarez & Marsal, a global consulting firm, to help turn around the business. In April, company CEO Robert S. Merritt resigned. Ignite also announced it was considering a possible sale, with both strategic and private equity buyers thinking of buying the company out of bankruptcy.

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Not surprisingly, the company’s share price has been retreating and, as of the end of May, was down to around $0.018 per share. In order to reverse the negative trend, the company has pursued a number of different options, but none have resulted in increased sales or guest traffic.

Joe’s Crab Shack was established in Houston in 1991. Landry’s Restaurants Inc. acquired the company in 1994 and sold it to Ignite Restaurant Group in 2006. While Ignite continues to feel the weight of lower sales, both strategic and private equity buyers are looking at purchasing the company out of bankruptcy.

Even if a successful alternative does come to fruition, Ignite may still need to file for Chapter 11 protection. Chapter 11 bankruptcy protection would allow Ignite Restaurants to reorganize and the company could remain in business. A Chapter 11 filing doesn’t necessarily mean Ignite will close stores, but the company does not have an issue with streamlining and shutting down stores it deems to be underperforming.

In 2016, Ignite Restaurants closed 18 of its 130 Joe’s Crab Shack stores and one Brick House Tavern. It is now left with 112 Joe’s Crab Shacks in 31 states and 25 Brick House Taverns. In 2015, Ignite sold its 150-location Romano’s Macaroni Grill chain to Redrock Partners LLC.

Sources:

Joe’s Crab Shack Owner Said to Prepare Bankruptcy Filing,” Bloomberg, May 4, 2017.

Ignite Restaurant Group, Inc. Completes Sale of Romano’s Macaroni Grill to Redrock Partners, LLC and Announces Organizational Restructuring,” Ignite Restaurant Group, April 17, 2015.

Form 10-Q,” Ignite Restaurant Group, May 16, 2017.

 

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Categories: Bankruptcies, News

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