Iconic seafood chain Red Lobster is exploring the option of filing for Chapter 11 bankruptcy, seeking to ease mounting financial strains, according to inside sources. The company is reportedly weighing the possibility of restructuring its debt to address burdensome leases, long-term contracts, and rising labor costs.
Red Lobster has been consulting with law firm King & Spalding. A Chapter 11 filing would allow the company to continue operating while developing a debt reduction strategy with creditors and investors, placing it in a more sustainable financial position for the future. While discussions remain ongoing, a final decision on the bankruptcy filing has yet to be made.
Factors Contributing to Red Lobster’s Financial Strain
Red Lobster’s financial difficulties have been attributed to various factors. The company’s signature “Ultimate Endless Shrimp” promotion has reportedly contributed to significant operating losses. Struggles are compounded by a complex and changing ownership timeline.
Founded in 1968, Red Lobster was acquired by General Mills in 1970 and became part of Darden Restaurants. Darden sold Red Lobster to Golden Gate Capital in 2014, with Thai Union acquiring Golden Gate’s stake in 2021. Earlier in 2024, Thai Union signaled its intention to exit its Red Lobster investment, citing misaligned capital allocation priorities.
Red Lobster recently appointed Jonathan Tibus as its new CEO. Tibus brings expertise in restructuring plans for underperforming businesses.
Thai Union’s Decision to Exit
Earlier in 2024, Thai Union signaled its intention to exit its Red Lobster investment. The firm said in a statement on its website at the time that the restaurant’s “ongoing financial requirements no longer align with Thai Union’s capital allocation priorities.”
“The combination of COVID-19 pandemic, sustained industry headwinds, higher interest rates and rising material and labor costs have impacted Red Lobster, resulting in prolonged negative financial contributions to Thai Union and its shareholders,” added Thai Union Group chief Thiraphong Chansiri.
Thai Union Group also noted that it recorded a share loss of roughly $19 million in the first nine months of 2023 from Red Lobster alone. As a result, the Thailand-based company included a $530 million non-cash impairment charge in its fourth-quarter earnings report for its investment in Red Lobster.
The Potential Impact of Chapter 11
Under Chapter 11 protection, Red Lobster could potentially renegotiate unfavorable leases and contracts. This financial restructuring could provide the necessary relief to address the company’s ongoing financial challenges and offer a pathway towards a more stable future.
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With information from NY Post and Fox news
