A sprawling Wendy’s franchisee that sought Chapter 11 bankruptcy protection earlier this month could close as many as 30 restaurants over the next few weeks as part of a cash collateral agreement, new court filings reveal.
Meritage Hospitality Group, which operates 314 Wendy’s locations across 15 states, says it has already identified five unprofitable stores that it planned to shut down and vacate this weekend.
In a bankruptcy docket filed late Friday, Meritage said it is seeking to cancel the leases and franchise agreements for the stores, which it has described as burdensome and unnecessary, as it seeks to restructure its operations.
The impacted Wendy’s restaurants are located in Virginia, Florida, Texas, and Oklahoma.
As of Saturday, the stores were still listed as open on Google and appearing on Wendy’s store locator, but phone calls to the stores went unanswered.
Fast Company reached out to The Wendy’s Company and Meritage Hospitality Group for comment.
Why are these Wendy’s stores closing?
Michigan-based Meritage Hospitality Group has sought to use cash collateral for its day-to-day operations, a common and often necessary strategy for companies as they work through the Chapter 11 process. Last week, a bankruptcy judge approved Meritage’s use of cash collateral.
However, as part of an agreement with lenders, the franchisee said in a court filing that it will close at least 30 of its restaurants that are operating at a loss. That figure is almost 10% of Meritage’s entire fleet.
The store closures are described in court filings as “adequate protection” for Meritage’s lenders in exchange for use of the cash collateral. Meritage owes one of its lenders more than $135 million, court documents show.
Which Wendy’s stores are closing?
The franchisee has identified the first five locations that will close, with the restaurants located in four states:
- 441 Market St, Gordonsville, VA 22942
- 1175 Dunn Ave, Jacksonville, FL 32218
- 301 College Ave, Levelland, TX 79336
- 2525 South Monroe Street Tallahassee, FL 32301
- 2420 W Main St, Durant, OK 74701
The closing date identified in court documents for these stores was yesterday, September 25.
According to the cash collateral order, additional stores will close on a rolling schedule through October 16, with at least 30 stores impacted in total. The additional stores were not identified.
It was not immediately clear how many jobs could be impacted by these closures. Meritage initially said it had intended to maintain its restaurant operations and continue paying its roughly 9,000 employees during the bankruptcy process.
Is Wendy’s in trouble?
Wendy’s is not having the best of years.
In addition to one of its largest franchisees being in bankruptcy, the fast-food burger chain has been closing hundreds of underperforming stores in a laborious turnaround effort.
During its second quarter, Wendy’s saw its U.S. same-store sales drop 7% as it has struggled to effectively communicate its value proposition against those of competitors such as McDonald’s and Burger King.
Wendy’s CEO Bob Wright admitted in August that the brand has fallen short on marketing. Meritage Hospitality Group, in its Chapter 11 filings, has cited these broader challenges with the Wendy’s brand as being one the drivers of its bankruptcy.
Shares of The Wendy’s Company (Nasdaq: WEN) have declined almost 20% this year.
This story is developing and may be updated…