A large Pizza Hut franchisee declared bankruptcy Monday weeks after the franchisor filed a lawsuit accusing the operator of financial mismanagement.
EYM Pizza has 126 locations across Illinois, Wisconsin, South Carolina, and Georgia. It recently shuttered its Indiana market, which had 15 stores.
In June, Pizza Hut filed a lawsuit against EYM over multiple breaches of contract and financial mismanagement. According to court documents, From 2019 to 2023, while Pizza Hut’s same-store sales rose by 7 percent, EYM’s sales fell by 10 percent, indicating a significant operational decline. Additionally, EYM’s restaurants failed quality assessments at a much higher rate than other Pizza Hut franchises.
Financially, EYM accrued over $3 million in past-due debt by December 2022 due to missed payments for royalties, advertising fees, and vendor services. In response, Pizza Hut issued multiple default notices throughout 2022 and 2023. In August 2023, a forbearance agreement was established, which allowed EYM to sell its restaurants and address its financial issues. However, EYM failed to meet the agreement’s milestones, including timely payments and operational standards, and delayed selling its Georgia and South Carolina locations.
Pizza Hut terminated the forbearance agreement in February but gave EYM another chance through a Limited Term Reinstatement Agreement (LTRA) in April. Despite this, EYM continued to breach the agreement’s terms, leading Pizza Hut to issue final termination notices in June.
This lawsuit follows a prior legal dispute where EYM sued Pizza Hut, claiming breach of contract and seeking temporary and permanent injunctive relief. EYM’s lawsuit highlighted grievances over Pizza Hut’s management practices and sought judicial intervention to prevent immediate termination of its franchise agreements. However, the court denied the operator’s request for a preliminary injunction, allowing Pizza Hut to proceed with enforcing its contractual rights.
EYM sued Pizza Hut again on July 16, seeking to prevent the chain from taking any actions that would terminate or disrupt EYM’s operations while the legal proceedings are ongoing. EYM Pizza argued that such actions by Pizza Hut would cause irreparable harm to its business, employees, and customers. It emphasized that the disruption could lead to significant financial losses and damage to its reputation, which would be difficult to recover from even if it prevailed in the lawsuit.
However, the court denied the temporary restraining order on Monday, resulting in EYM moving forward with bankruptcy. The franchisee said in court documents that it has invested about $46.6 million in Pizza Hut restaurants. It owes about $23.05 million to banks.
EYM entered the Pizza system in 2016 when it bought franchisee territories in Illinois for $10.85 million and Indiana for $8.67 million. The group followed that up with the acquisition of stores in Georgia and South Carolina for $9.02 million. In 2018, EYM took over units in Wisconsin for $6.88 million and bought another 16 restaurants for $1.56 million. The franchisee was highly critical of Pizza Hut in its lawsuit, citing the brand lost its title as the largest pizza chain in terms of systemwide sales to Domino’s in 2017 and that the company wasn’t keeping up with modern times and adapting to current technology.
EYM joins several entities that have declared bankruptcy thus far in 2024, including Red Lobster, Rubio’s Coastal Grill, Tijuana Flats, Sticky Fingers, Oberweis Dairy, Tocaya and Tender Greens, Foxtrot and Dom’s Kitchen, a 25-unit Arby’s franchisee, a 48-unit Subway franchisee, a 17-unit Popeyes franchisee, and a six-unit Alamo Drafthouse Cinemas franchisee.
