A longtime Arby’s franchisee that filed for bankruptcy in June called out low sales, tax refund delays and poor acquisition demand as it looks to reorganize the business.
Miracle Restaurant Group, a 25-unit Arby’s operator with restaurants in Illinois, Indiana, Texas, Mississippi and Louisiana, filed for Chapter 11 debt protection June 20, its second time in bankruptcy since forming in 2005.
Based in Covington, Louisiana, Miracle Restaurant Group grew to more than 60 Arby’s restaurants by 2010, when it filed for bankruptcy relief and closed a number of stores. In the most recent filing, Managing Member Donald Moore said problems began during the coronavirus pandemic as price hikes couldn’t compensate for inflation-driven increases in commodity and labor expenses.
“This resulted in significant erosion in the variable cash earned from operations to cover the fixed costs of rent and debt service,” Moore wrote in the filing.
Miracle’s two largest creditors are Arby’s itself, as court documents show the franchisee owes $265,000 in royalties and $250,000 to the Arby’s Foundation. Another $160,778 is owed to McLane Foodservice. Miracle said it has $1 million to $10 million in assets and $1 million to $10 million in liabilities.
The company tried to sell its restaurants in Texas, Illinois and Indiana, but said negative EBIDA, or earnings before interest, depreciation and amortization, at some stores reduced buyer interest. It tried again to sell some units in Texas and the Chicago area, “but overall declines in Arby’s systemwide same-store sales and low sales-to-fixed-cost ratios of certain” locations hindered Miracle’s ability to secure offers.
Negative same-store sales in 2023 and through the first half of 2024 further compressed the profit margin, Moore wrote, and Miracle has also seen disappointing sales at some of its restaurants opened over the last three years.
“The negative same-store sales and lower than anticipated sales from newer stores have resulted in certain stores that operate at extremely low or (at times) negative cash flow on a weekly and monthly basis,” the company noted in its filing.
Miracle’s working capital was further hampered by what it described as “significant delays” in tax refunds from the IRS. The company in 2021 filed for Employee Retention Tax Credit refunds totaling more than $3.5 million, which it said haven’t been paid.
While it worked with its landlords and with Arby’s on some relief measures, it wasn’t enough to prevent the bankruptcy, Miracle said in the filing. The franchisee did sell three restaurants in Indiana to pay down some debt to First Franchise Capital Corp. and the U.S. Small Business Administration.
As part of its restructuring, Miracle intends to sell its seven locations in Texas and eight in Illinois, along with the two remaining Indiana restaurants. The company retained Peak Franchise Capital to assist with the marketing and sale of the stores.
Part of Inspire Brands, Arby’s has about 3,400 locations in the U.S. to go along with nearly 200 international units. Systemwide sales were $4.76 billion in 2023, up from $4.6 billion the prior year, according to Franchise Times Top 400 data.
Miracle Restaurant Group’s bankruptcy filing came on the same day that a 48-unit Subway franchisee filed its Subchapter V bankruptcy petition. And it follows a string of filings going back to early 2023 in systems including Burger King, CKE, Wendy’s and Popeyes as operators cite falling sales and traffic, rising costs and continued pandemic fallout.