Bankrupt Wendy's Franchisee to Close at Least 30 Restaurants

A Wendy's franchisee operating 314 restaurants across 15 states will close at least 30 locations by October 16 under a cash collateral agreement with its lenders, new bankruptcy filings show. Meritage Hospitality Group, which filed for Chapter 11 earlier this month, shuttered its first five unprofitable stores on September 25.

The five closures span four states:

• 441 Market St, Gordonsville, VA 22942
• 1175 Dunn Ave, Jacksonville, FL 32218
• 301 College Ave, Levelland, TX 79336
• 2525 South Monroe Street, Tallahassee, FL 32301
• 2420 W Main St, Durant, OK 74701

As of Saturday, those stores still appeared open on Google and Wendy's store locator, but phone calls went unanswered. Neither The Wendy's Company nor Meritage immediately responded to requests for comment from Fast Company.

Why is the franchisee closing stores?

Meritage, based in Michigan, needs lenders' permission to use cash collateral for day-to-day operations — a standard step in Chapter 11. Last week, a bankruptcy judge approved that use.

The price is steep. Court filings describe the closures as "adequate protection" for lenders in exchange for access to the cash. Meritage owes one lender more than $135 million, according to court documents.

The 30 closures equal nearly 10% of Meritage's entire fleet. Additional stores will close on a rolling schedule through October 16; the franchisee has not yet identified them.

It remains unclear how many jobs are at risk. Meritage initially said it intended to maintain operations and keep paying its roughly 9,000 employees during the bankruptcy.

Is Wendy's itself in trouble?

The chain is not having a good year. Wendy's U.S. same-store sales fell 7% in the second quarter as the brand struggled to communicate its value proposition against competitors such as McDonald's and Burger King. The company has been closing hundreds of underperforming locations in a protracted turnaround effort.

CEO Bob Wright admitted in August that the brand has fallen short on marketing. Meritage cited those broader Wendy's brand challenges as one driver of its bankruptcy in its Chapter 11 filings.

Investors have noticed. Shares of The Wendy's Company (Nasdaq: WEN) have declined almost 20% this year.

With more store closures coming on a rolling schedule through mid-October, and Meritage's restructuring still in early stages, both the franchisee's 9,000 employees and Wendy's turnaround timeline face further tests in the weeks ahead.