Joe’s Crab Shack Owner Files for Bankruptcy After Sales Drop

(Bloomberg) -- Ignite Restaurant Group Inc., the operator of the Joe’s Crab Shack and Brick House Tavern & Tap chains, filed for bankruptcy with an eye toward a possible sale to an affiliate of Kelly Investment Group.

Ignite has seen sales decline as the U.S. dining sector faces drops in customer traffic. The company listed estimated total debts as of April 30 of  $197.3 million in Chapter 11 papers filed Tuesday in Houston federal court. Assets totaled $153.4 million.

Ignite announced in April that Robert S. Merritt had resigned as chief executive officer and left the board. Jonathan Tibus, a managing director at turnaround firm Alvarez & Marsal, was chosen to replace him.

“The debtors have continued to experience declining financial performance and declines in comparable restaurant sales and income from operations at Joe’s and Brick House,” Tibus said in a court filing. “The debtors have closed underperforming restaurants and implemented cost reduction measures to help mitigate the effect of these declines and improve their financial position and liquidity.”

Ignite began looking around for a buyer last year, but as its condition deteriorated, viable offers dried up. In June, Ignite lined up Kelly affiliate KRG Acquisitions Co. as a “stalking horse” to open bidding in a court-supervised auction. KRG’s offer consists of $50 million and assumption of liabilities.

Industry Woes

The broader U.S. restaurant industry is suffering headwinds on multiple fronts. Eateries are relying more heavily on discounts and specials to attract diners, crimping profit margins. And a historic bout of food deflation has turned grocery stores into a bigger bargain. That’s made consumers more likely to eat meals at home.

Chain restaurants also are losing market share to mom-and-pop places -- a shift for the industry. Sales for independent restaurants are expected to grow about 5 percent through 2020, while chains will climb just 3 percent, according to Pentallect Inc., a research firm in Chicago.

Ignite operates 137 Joe’s and Brick House restaurants in 32 states, with “large numbers” in Texas, Florida and California, plus three franchises in the United Arab Emirates, according to court papers. It employs 8,400 people, including 5,500 part-time workers. The first Joe’s opened in Houston in 1991.

The case is In re Ignite Restaurant Group Inc., 17-33550, U.S. Bankruptcy Court, Southern District of Texas (Houston).

--With assistance from Lauren Coleman-Lochner and Leslie Patton

To contact the reporter on this story: Dawn McCarty in Wilmington, Delaware at dmccarty@bloomberg.net.

To contact the editors responsible for this story: Christopher DeReza at cdereza1@bloomberg.net, Nick Turner