Cracker Barrel decided against saving the brand from foreclosure.
Cracker Barrel announced Wednesday that eatertainment brand Punch Bowl Social has closed all of its 19 locations and laid off most of its restaurant and corporate staff and that it would not prevent foreclosure on the brand.
The primary lender under Punch Bowl Social’s secured credit facility declared a default and announced intentions to foreclose on its collateral interest in the equity of Punch Bowl Social and substantially all of the brand’s assets unless Cracker Barrel repaid or unconditionally guaranteed Punch Bowl Social’s debt.
Cracker Barrel decided against investing further in the brand, citing a strategy to concentrate on its core business and the uncertainty of the eatertainment company’s viability after the COVID-19 pandemic.
In Q3, Cracker Barrel expects to record a $133 million non-cash impairment charge, which represents the value of its equity investment in Punch Bowl Social and the principal and accumulated interest associated with the unsecured debt the company assumed when it made the equity investment.
“From the start, many thought the paring of Punch Bowl Social and Cracker Barrel was unusual. We saw it differently—we recognized the possibilities and the opportunity to grow our brand with the support of one of the largest and most respected hospitality companies in the country," Punch Bowl Social CEO and founder Robert Thompson said Wednesday in a statement to FSR. "We find it difficult to judge the decisions made by anyone trying to survive the global COVID-19 pandemic. We are all navigating new terrain and doing our best to simply survive. Punch Bowl Social is continuing to collaborate with our lender, CrowdOut, and is working now to be in a strong position for our future re-openings, nationwide.”
CrowdOut, a non-bank lender for middle-market companies, said in a statement that it's continuing to support Punch Bowl Social and working with the management team to navigate through the pandemic.
“Restaurants across the country are experiencing duress that has never been seen in the industry,” said Alexander Schoenbaum, CEO of CrowdOut, in a statement. “Robert and his team have built an incredible brand we believe in, and we are confident in Punch Bowl Social and its team to work through these difficult and unprecedented days. We look forward to seeing Punch Bowl reopen its doors to the public as soon as it is safe and practicable.”
“For the past two years, CrowdOut has been a loyal partner to Punch Bowl Social as we grew to 20 units in 17 markets across the country,” Thompson said in a statement. “None of us could have prepared for COVID-19, which has had, and will continue to have, massive economic and public health impacts across the world. The restaurant industry has been one of the hardest hit and we were not immune. We have temporarily closed our locations and significantly reduced both our staff and operations in order to re-emerge on the other side of this global pandemic. In these turbulent times, we appreciate CrowdOut’s support and are grateful for our strong and beneficial partnership, now and in the future.”
In July 2019, Cracker Barrel purchased a majority interest in Punch Bowl Social. The company valued the equity investment at $79.5 million at the end of January.
Launched in 2012 by Thompson, Punch Bowl Social blends activities, including shuffleboard, ping-pong, bowling, pinball, and Skee-Ball with food specialties like pan-fried pork chops and chicken and waffles.
Cracker Barrel CFO Jill Golder had high expectations for Punch Bowl Social, even saying during the company's Q4 review that it had the potential to reach 100 domestic units. She viewed the investment as a way to "drive long-term value creation." The company wanted to use it as an opportunity to engage new demographics, specifically millennials and Generation Z. Back when Cracker Barrel made the purchase, Punch Bowl Social reported targeted average-unit volumes in the $7 million to $8 million range, with new unit store-level EBITDA excluding preopening of 17 percent or higher.
Eatertainment brands across the country have taken a hit during the COVID-19 pandemic. Dave & Buster’s, which owns 136 units across 39 states, Puerto Rico, and Canada, has seen its stock plunge substantially since mandated closures of dining rooms. Main Event Entertainment and Pinstripes closed all of their locations. Chuck E. Cheese closed its entertainment venues, but is remaining open for carryout and delivery.
Cracker Barrel operates 664 units and 28 Maple Street Biscuit Company locations across 45 states. Most of the stores have been operating via pick-up and delivery. The company has yet to close any locations but that is subject to change.
The brand also provided notice to its lenders to borrow the remaining available amount under its revolving credit facility so that a total of approximately $947 million is currently outstanding.