An Unexpected Franchisee Now Files Bankruptcy For The Second Time

June 27, 2024

An unexpected franchisee now files bankruptcy for the second time after weak sales and a delay in tax refunds, sources report.

An Arby’s franchisee owned by Miracle Restaurant Group, who has restaurant locations in five different states, has filed for bankruptcy.

The Miracle Restaurant Group, which operates approximately 25 restaurants in the States of Illinois, Indiana, Texas, Mississippi, and Louisiana, has sought a Chapter 11 bankruptcy for a second time due to very weak sales and delayed tax refunds as well as its high costs and a very skeptical restaurant M&A market.

According to the court filings, Miracle has stated that the issues had started with the pandemic, which in turn led to severe inflation that drove up their costs.

Miracle has stated that they tried to sell restaurants in Illinois as well as in Texas, but due to negative EBITDA, some locations in that area had greatly reduced buyer interest.

Miracle has also said its working capital has been hurt by “significant delays” in tax refunds from the IRS.

The restaurant group then filed for Employee Retention Tax Credit refunds in 2021, which are worth some $3.5 million, that have yet to be paid, the company said.

Arby’s system sales increased 1.8% in 2023, according to the Technomic Top 500 Chain Restaurant Report.

This system closed a net of two locations last year, finishing 2023 with 3,413.

The company tried to once again sell restaurants in Texas and around Chicago, “but overall declines in Arby’s systemwide same-store sales and low sales-to-fixed-cost ratios of certain” restaurants “hampered efforts to secure offers.”

Miracle Restaurant Group sold three stores in Indiana to pay down some debt and the franchisee plans to sell its seven stores in Texas and the eight stores in Illinois as well as its two remaining locations in Indiana, reports Restaurant Business.

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Also Read: Another Mall Clothing Retailer Now At High Risk of Bankruptcy

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Market News Today- A Massive Restaurant Franchisee Has Now Filed Bankruptcy. — Market News Today – An Unexpected Franchisee Now Files Bankruptcy For The Second Time.

An essential company now files a surprising bankruptcy after miscalculating demand for its inventory after the Covid-19 pandemic.

Supply Source Enterprises, a leading provider of branded and private label cleaning products and personal protective equipment, on May 21 filed for Chapter 11 protection to seek a sale of its assets.

Supply Source brands include The Safety Zone and Impact Products.

The Guilford, Connecticut debtor listed $50 million to $100 million in assets in its petition and $180 million in funded debt, which includes $80 million owed on a term loan credit facility, $60 million owed on an asset-based loan, and about $40 million in unsecured debt.

Before the Covid-19 pandemic, which generated huge demand for cleaning supplies and personal protective equipment in 2020, Supply Source had been consistently profitable with stable single-digit growth, according to a declaration from the debtor’s Chief Restructuring Officer Thomas Studebaker.

Once the pandemic hit in 2020, the debtor had substantial growth due to high demand for safety, hygiene and sanitation products

The debtor reported adjusted Ebitda of $93 million in 2020 which was nearly a 300% increase over the previous year.

However, the company’s financial performance deteriorated in subsequent years.

Based on the unprecedented demand in 2020, the company commissioned an industry study in early 2021 that concluded that the Covid-19 pandemic would fundamentally change the cleaning supplies and protective equipment industry and market for its products.

The study also estimated that the company’s Covid-related growth would likely be sustained through 2024.

In contemplation of continued customer demand at elevated prices, based on the study’s data, the debtor increased purchases of inventory even though the costs were higher due to supply chain constraints during the pandemic.

Despite the study’s assurance that growth would be sustained for years, the pandemic’s positive effect on the market faded by the end of 2021 and demand for PPE decreased to normal rates, reports TheStreet.

The reduction in demand led to large amounts of excess inventory that the company could not sell in the same quantities and prices.

The excess inventory forced the debtor to secure additional storage space, which increased storage costs.

These factors tightened the company’s liquidity and led to a decline in annual revenue in 2023 by 26% from 2022, resulting in a negative 2023 Ebitda of $13 million.

The debtor’s liquidity issues led to it being overdrawn on its asset-based loan facility by $30 million.

The ABL lender in February 2024 swept the debtor’s bank accounts, further impacting the company’s financial distress.

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Also Read: This Massive Mall Retailer Is Now Closing In California

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