Summit Restaurant Holdings, one of Hardee's largest franchisees, declared bankruptcy Thursday.
The operator once oversaw more than 145 restaurants in eight states, but recently closed 39 stores. The entity is part of a larger group of affiliated companies—the Capstone Restaurant Group—that oversees more than 225 restaurants in 16 states, including Hardee's and Carl's Jr.
Six weeks before filing, the franchisee tapped Brookwood Associates to help with a sales process.
The company owes $22.1 million to Cadence Bank, plus accrued and unpaid interest. It also owes $6 million to CKE Restaurants—parent of Hardee's and Carl's Jr.—in the form of royalties, advertising contributions, and other amounts, and certain amounts to landlords and vendors.
Summit attributed its bankruptcy to declining foot traffic and revenue without a proportionate decrease in rental obligations, debt, and other liabilities, according to court documents. Additionally, the franchisee felt pressure from wage increases, labor costs, shipping and food inflation, lower staff availability, and general inflation. All of these factors contributed to Summit's cash flow issues.
Many of the restaurants underperformed and showed an inability to grow annual volumes, the bankruptcy document states. The low sales resulted in smaller profits, thus a bigger sensitivity to rises in labor, commodity, and maintenance expenses. Some restaurants were profitable, but others operated at a loss for a prolonged period. Because of this, Summit was unable to meet financial obligations on time.
Before declaring bankruptcy, Summit entered an asset purchase agreement with a stalking horse bidder (the first bid on assets, setting the minimum price). The entity agreed to purchase substantially all of the assets. An auction with other potential qualified bidders will follow. Summit wants to close the transaction by August.
Summit is one of several quick-service franchisees to declare bankruptcy in 2023. Earlier this year, Burger King operators 90-unit TOMS King and 120-unit Meridian Restaurants entered court proceedings, blaming COVID, increased costs, labor issues, and difficult liabilities. Also, Popeyes operator Premier Kings declared bankruptcy because of COVID-related issues and the death of its sole proprietor, which sent the company into operational instability.