An Arby’s franchisee with restaurants in five states filed for bankruptcy last week following a combination of weak sales, high costs, a delayed tax return and a skeptical restaurant M&A market.
Miracle Restaurant Group operates 25 restaurants in five states: Illinois, Indiana, Texas, Mississippi and Louisiana.
The company, based in Covington, Louisiana, was formed in 2005 and grew to at least 60 restaurants before it filed for bankruptcy the first time in 2010.
According to court filings, Miracle said the current problems started with the pandemic, which ultimately led to severe inflation that drove up costs. Price hikes could not make up for it and the result drained margins.
The company said it tried to sell its restaurants in Texas and Illinois, but negative EBITDA, or earnings before interest, taxes, depreciation and amortization, at some locations in those markets reduced buyer interest.
Same-store sales at the franchisee’s locations turned negative in 2023 and into 2024, which worsened the company’s profit challenges. Miracle also said that new stores did not generate sales the company anticipated.
As such, certain stores operate at “extremely low” or “negative cash flow on a weekly and monthly basis.”
Miracle also said its working capital has been hurt by “significant delays” in tax refunds from the IRS. Miracle filed for Employee Retention Tax Credit refunds in 2021, worth some $3.5 million, that have yet to be paid, the company said.
Miracle worked with landlords and Arby’s for relief, given negative sales and weak margins, but those efforts were not enough, the company said.
The company also tried again to 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.”
Arby’s system sales increased 1.8% in 2023, according to the Technomic Top 500 Chain Restaurant Report. The system closed a net of two locations last year, finishing 2023 with 3,413.
Miracle Restaurant Group sold three stores in Indiana to pay down some debt. 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. The company wants to focus on its restaurants in Louisiana and Mississippi.
It is the latest in a string of bankruptcy filings by restaurant chains and some franchisees. Red Lobster and Rubio’s have filed for bankruptcy while concepts like BurgerFi and Uncle Julio’s are in danger of similar fates. A 48-unit Subway operator filed for bankruptcy last week, while Hooter’s and other concepts have closed numerous restaurants.
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