An agreement is in place to sell the gastropub chain.
Over the past few years, Bar Louie primarily drove sales and profit through new-unit expansion. But a problem emerged along the way. It funded growth partially through new debt, yet also with cash flow from operations. And, eventually, didn’t have enough cash on hand to fix underperforming units when they started to drag the system.
The result, it said Monday, was an “inconsistent brand experience,” resulting from restricted liquidity otherwise needed for store refreshes, equipment maintenance, and modernization.
Couple that with “increased competition and the general decline in customer traffic visiting traditional shopping locations and malls,” and Bar Louie filed for Chapter 11 bankruptcy protection following the closure of 38 of its 134 restaurants.
The chain, a holding of Sun Capital Partners, has multiple buyers interested in the business, it said in a filing. Bar Louie reached an agreement with lenders to act as the “stalking horse” purchaser and to support business through a Chapter 11 bankruptcy sale. The company did not identify bidders, just noting that three suitors submitted letters of intent in December. Higher offers can still come in. “Stalking horse” bidders set the floor for the price in exchange for having their fees paid if another company swoops in.
Outside of the closures, the company said it does not expect the bankruptcy filing to have a meaningful impact on day-to-day operations and that it shut down the underperforming stores to “strengthen its operational and financial position.” Bar Louie’s voluntary petitions for relief under Chapter 11 protection will aid the sales transaction. It also received commitments from lenders for debtor-in-possession financing, the company said, to continue operations and fund post-bankruptcy operating expenses, including obligations to employees and suppliers.
"Bar Louie is a profitable business focused on long-term growth with new investors. The sale through Chapter 11 will help us to focus on our profitable core locations and expand in areas that have a proven track record of success," Tom Fricke, CEO of Bar Louie, said in a statement. "Most importantly, it ensures that we can continue to provide superior service to our guests, implement an exciting range of new customer-facing initiatives, expand our marketing influence, and continue to offer the 5-star experience we are known for.”
The company added it expects to emerge from the Chapter 11 process within 90 days.
According to the filing, Bar Louie reported assets between $50 million and $100 million and owes roughly $110 million to creditors. Sysco holds the biggest unsecured claim at $3,046,275.52.
Bar Louie said traffic declines were more pronounced at stores near shopping locations and malls, which led to sales falling short of forecasts. “These customer declines were also driven by major changes in consumer behavior, including the general national trend away from casual dining,” it added in the filing.
Same-store sales declined 4.2 percent in 2019. Bar Louie’s revenue for the 12 months ended December 31 was $252 million, down 3.7 percent, year-over-year.
In 2018, it hired a new CEO (Fricke) and assembled a fresh management team. The company then outlined a turnaround strategy centered on improving guest experience through better customer service and store maintenance; improving food quality to better complement its beverage program; and redefining Bar Louie’s brand essence by developing a new advertising campaign.
Some current directives include its Louie Nation Loyalty Program; the construction of private dining rooms where feasible; adding covered patios to limit the impact of weather on outdoor seating areas; the implementation of store-level party planning sales managers; and corporate gift card partnerships.
Bar Louie said initiatives positively impacted performance in 72 of its 110 corporate locations. “However, despite successful execution of these programs, 38 of the locations have seen their sales and profits decline at an accelerating pace,” the brand said.
The declines forced a reduction of expenses and other investments, “with the inevitable impact being felt throughout the whole system.”
And that’s where the lack of available liquidity came into play. Despite the success of the initiatives, Bar Louie said, not having investable capital on hand “resulted in delays to the broader roll out of these initiatives to other locations and curtailed the ability to implement further marketing related activities compared to others in the industry,” leading to the same-store sales drop.
The 38 underperforming locations generated a loss of $4 million in 2019. “Further, the surrounding environment at these locations has seen significant declines in customer traffic and coupled with increasing rental and other store level costs, could no longer absorb the continuing decline in sales at these locations,” the company said of the closures.
Those restaurants reported same-store sales declines of 10.9 percent in 2019. The rest of Bar Louie’s corporate system witnessed a 1.4 percent drop. The brand said the bulk of its sales declines occurred in Q4 2019 “when financial conditions and a lack of liquidity forced management to significantly reduce marketing spend.”
Bar Louie engaged Carl Marks Advisors in September to conduct a strategic review of the business. It also brought on Configure Partners, LLC that month as its proposed investment banker to assisted in the evaluation of strategic alternatives, including the sale of the company.
Bar Louie tapped Howard Meitiner of Carl Marks as its chief restructuring officer, effective January 23.
As of the filing, Bar Louie said it contacted 101 potential strategic buyers and 153 financial buyers, out of which 73 executed confidentially agreements. The company received initial indications interest from seven potential buyers and engaged in additional discussions, including management presentations, in Dallas.
From that group of seven, three parties submitted letters of intent in December.
However, during this process, Bar Louie “continued to suffer a drain on cash flow from its underperforming stores.” It became apparent the company’s liquidity position would require the sale process continue in a Chapter 11 setting.
Bar Louie closed the 38 unprofitable locations immediately preceding the filing “after unsuccessful attempts to reduce store-level costs and drive sales.”
The chain employs about 4,141 full-time and part-time hourly people, 370 full-time salaried workers, and 55 salaried employees at its corporate headquarters in Addison, Texas. The filing did not address the status of Bar Louie’s 24 franchised locations.
Bar Louie was founded in 1991 in Chicago and grew to 31 stores by 2010, when it was acquired by its current owners. From 2010 through the end of 2019, it expanded to 110 company-run units and 24 franchises in 26 states. The company’s gastrobars are located in a variety of locations, including lifestyle centers, traditional shopping malls, event locations, central business districts and other stand-alone specialty sites.