Troubled seafood chain Red Lobster is looking for a buyer to avoid filing for bankruptcy, CNBC reports.
The company has considered filing for bankruptcy to help it restructure its debt and emerge from a series of costly and lengthy leases, but it has also been looking for a buyer in recent months, people familiar with the matter told CNBC.
At least one company was interested 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 lenders could take control of the company.
Even if Red Lobster finds a buyer, it will have difficulty avoiding a Chapter 11 bankruptcy filing because it is trying to get rid of many leases that would be difficult to break outside of bankruptcy, people familiar with the matter said.
Bloomberg first reported Red Lobster was considering filing Chapter 11 last week. Red Lobster did not respond to a request for comment.
The long-established chain, known for its Cheddar Bay Biscuits and bottomless shrimp, is looking for a new home at a time when capital is expensive and large restaurant groups are wary of lagging in the broader casual dining space.
Over the past decade, as ownership changed, Red Lobster took on debt and entered into multiple long-term leases at its more than 700 locations, which put pressure on its balance sheet.
Jonathan Tibus, managing partner at consulting firm Alvarez & Marsal, was recently named CEO of Red Lobster following the departures of several senior executives. This turnover makes it difficult for the chain to turn a profit.
The restructuring expert has decades of experience working with struggling restaurant chains, many of which are smaller than Red Lobster. Tibbs did not respond to a request for comment.
This year is the 10th anniversary Darden Restaurant’ The sale of Red Lobster comes after investors pushed for the company to divest. Private equity firm Golden Gate Capital bought the seafood chain for $2.1 billion and began turning a profit.
Thai Union Group, a seafood purveyor and long-time purveyor of red lobster, bought a minority stake in the chain in 2016. (a few months after the outbreak) bought the remaining shares of Golden Gate.
Unlike many restaurant companies, Red Lobster has survived the pandemic without filing for bankruptcy. But the retirement of longtime leader Kim Lopdrup in 2021 opened a revolving door of CEOs.
Kelli Valade took the top job in 2021, but left a year later to become Denny’s CEO. Horace Dawson, who was hired more than a year after Valard’s exit, served for about six months before the company named Tibus CEO in March.
But Red Lobster’s problems run deeper than the leadership maelstrom. For about two decades, the broader casual dining scene has struggled to compete with fast-casual chains like Panera Bread and Chipotle Mexican Grill. The pandemic has exacerbated the problem, particularly hurting full-service restaurants like Red Lobster.
The seafood chain has also struggled with some self-inflicted wounds, most notably its disastrous “Endless Shrimp” promotion. Last year, the company changed its offers from weekly to daily in an effort to boost slowing sales in the second half of the year.
But the offer has spurred business, putting pressure on Red Lobster’s bottom line as diners seek out cheap deals. As a result, Red Lobster lost $11 million in the fiscal third quarter and $12.5 million in the next quarter.
In January, Thai Union Group announced plans to sell its stake in Red Lobster.
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