Report Says, Red Lobster Considering Bankruptcy Filing

Rumor has it that popular seafood restaurant, Red Lobster is considering filing for bankruptcy to help alleviate the financial pressures that have weighed down heavily on the company.

A report by Bloomberg stated that people familiar with the discussions have claimed that the company is considering a Chapter 11 bankruptcy filing to renegotiate taxing leases and to help solve other long-term contracts as well as increasing costs of labor.

No Final Decision Has Been Made

The outlet reported that the seafood restaurant chain is taking advice from law firm King and Spalding on the subject. While discussions are ongoing, no final decision has been made, the report adds.

If the company opts to file for Chapter 11 bankruptcy, it could continue operations while working with both creditors and investors to set up a debt reduction plan that would give it a better financial footing in the future.

Red Lobster’s History

So, the seafood chain has been passed around a bunch since Bill Darden and Charley Woodsby started it in 168.

General Mills swooped in and took over in 1970, helping it spread all over the place in the U.S. and Canada before selling it off to an independent publicly traded company called Darden Restaurants over two decades later.

Red Lobster Changes Hands Again

Darden Restaurants sold the company to Golden Gate Capital back in 2014. Thai Union, had earlier purchased a one-fourth stake in the company. In 2021, they bought out Golden Gate’s stake in the company granting them full ownership.

Red Lobster’s finances have plummeted in recent months as a result of grueling leases and increasing costs of labor, among other issues. This was reported by the people, who spoke on condition of anonymity, per Bloomberg.

How Did We Get Here?

Earlier this year, Thai Union disclosed its intention to divest from its investment in Red Lobster and incur a financial write-off.

This decision was communicated in a regulatory filing, wherein it was revealed that the restaurant chain’s “ongoing financial requirements no longer align with Thai Union’s capital allocation priorities.”

Thai Group Withdraws After Recording Over $19 Million Losses

“The combination of the 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 mentioned in a report on its website that it recorded a share loss of approximately $19 million over the first nine months of 2023 just from Red Lobster alone.

$530 Million Non-Impairment Charge Added To Fourth-Quarter Earnings Report

Sequel to this, the Thailand-based company added a $530 million non-cash impairment charge in its fourth-quarter earnings report for its investment in Red Lobster.

After impairment, Thai Union’s business and financial status remained substantial with a low net debt/equity ratio of 0.84 affirming Thai Union’s strong financial status, the Board has approved a share repurchase for financial management purposes not surpassing THB 3.6 billion or 200 million shares.

Thai Group Continues To Remain Profitable

The Group continues to deliver improvements in profitability and gross profit margin in all its main business areas. Thai Union is in the process of concluding its Corporate Strategy 2030. The plan will concentrate on its core business, centered around Ambient Seafood, Frozen, and PetCare.

“Through this, Thai Union’s management will advance ongoing strategies that strengthen its overall profitability and deliver long-term enhanced value for the Group’s shareholders,” the report says.

Thai Union: A Global Leader In Sustainable Seafood Innovation

Thai Union Group PCL is a huge seafood brand globally, providing top-notch, healthy, delicious, and creative seafood items to customers worldwide for 46 years.

Nowadays, the Thai Union is seen as one of the top seafood makers globally, especially in shelf-stable tuna products, selling over THB 155.6 billion (US$ 4.4 billion) yearly. With over 44,000 employees worldwide, Thai Union is committed to leading the way in sustainable, inventive seafood products.

Expanding Global Brand Portfolio

The company boasts a diverse global brand lineup, featuring prominent names like Chicken of the Sea, John West, Petit Navire, Parmentier, Mareblu, King Oscar, Hawesta, and Rügen Fisch on the international front.

In Thailand, it leads with brands like SEALECT, Fisho, Qfresh, Monori, OMG Meat, Bellotta, and Marvo, along with UniQ®BONE, UniQ®DHA, and ZEAvita for ingredients and supplements.

Rising Labor Costs Due To New Minimum Wage In California

Meanwhile, it’s not just Red Lobster facing difficulties due to rising labor expenses. Franchisees in California, especially, have felt the pinch since April 1, when a new wage law targeted fast-food chains and eateries with at least 60 outlets nationwide, where patrons pay before dining and table service is limited or absent.

Franchise owners in The Golden State have been mandated to pay their workers at least $20 per hour, which is a whopping 25% above the state’s general minimum pay.

Coping With Increased Labor Costs

As a result of the wage hike, restaurant owners have resorted to raising menu prices, postponing renovations, and reviewing work hours as a means to compensate for increased labor costs.

Even without the new minimum wage regulations, a lot of restaurant owners have had to raise prices to offset inflation, which surged to an unexpectedly high 3.5% in March. A rise in food expenses played a substantial role in the latest surge in the Consumer Price Index.

Red Lobster Welcomes New CEO

Last month, Red Lobster employed Jonathan Tibus as its new CEO. Tibus is highly regarded in the industry for his expertise in not only creating and executing restructuring strategies within struggling restaurants, as well as retail and hospitality sectors. He has spearheaded quite a good number of successful restructuring initiatives throughout his career.

The new employment led to speculations that Thai Union Group might be preparing to put the brand up for sale. The outlet also mentioned that Tibus has been the company’s third CEO over the last two years.

Best Option Under Prevailing Circumstances

He’s a professional with lots of experience in restructuring. He served as CEO of Kona Grill in 2019 when it filed for Chapter 11 bankruptcy protection. He also acted as Krystal’s chief restructuring officer during its Chapter 11 filing in 2020 and held a similar role at Quiznos during its bankruptcy declaration in 2014.

Dawson, who previously served as Red Lobster’s executive vice president and general counsel, took over as CEO in September, filling a vacancy left by Kelli Valade’s departure in April 2022 after just eight months.