Is BurgerFi Facing Bankruptcy? The Beloved Burger Chain’s Struggles Explained

The restaurant industry has seen a wave of bankruptcies in 2024, impacting well-known brands like Red Lobster. Now, BurgerFi, a popular fast-casual chain known for its premium burgers, might be the next to join this list. Recent developments have sparked concerns about the chain’s future as it grapples with financial troubles that could lead to bankruptcy.

Financial Struggles Surface: BurgerFi’s 10-Q Filing Raises Alarms

On August 16, 2024, BurgerFi filed a 10-Q form with the Securities and Exchange Commission (SEC), which revealed significant financial challenges. The company stated that it was unable to meet the deadline for reporting its latest quarterly earnings due to “significant adverse developments” in its business and liquidity.

In this filing, BurgerFi expressed serious concerns about its ability to remain operational without immediate financial relief. The company noted that if it does not secure “adequate relief from its senior lender and additional sufficient liquidity from potential liquidity providers or from the sale of the company’s assets to meet its current obligations,” it may be forced to seek bankruptcy protection.

Declining Sales and Rising Losses

BurgerFi’s financial troubles are largely attributed to declining sales and rising expenses. The company anticipates that sales for the quarter ending July 1, 2024, will show a 4% year-over-year drop, equating to approximately $1.8 million in lost revenue. This decline primarily stems from reduced same-store sales at both BurgerFi locations and its sister brand, Anthony’s Coal Fired Wings & Pizza, along with the closure of underperforming corporate-owned restaurants.

In response to its ongoing financial issues, BurgerFi closed 14 restaurants in 2023 and shuttered an additional eight locations during the first quarter of 2024. As of the end of that quarter, the chain operated 102 units. These closures were part of a broader effort to cut costs and stabilize the business, but they have yet to reverse the company’s downward trend.

For the second quarter of 2024, BurgerFi expects to report a net loss of $18.4 million—an increase from the $6 million loss recorded during the same period last year. The company cited several factors contributing to this deepening loss, including lower operating income, higher general and administrative expenses, and increased restructuring costs.

Liquidity Crisis: Immediate Funding and Loan Pressures

BurgerFi’s financial challenges are not limited to declining sales and rising losses. The company also faces a severe liquidity crisis that threatens its ability to continue operating. In its SEC filing, BurgerFi indicated that its current cash flow and operating results are insufficient to meet its obligations. The filing included a stark warning: “There is substantial doubt about the company’s ability to continue to operate.”

In an attempt to address its liquidity issues, BurgerFi entered an Emergency Protective Advance Agreement with lenders on August 9, securing $2.5 million in emergency funding. However, this cash injection may not be enough to stave off bankruptcy.

Back in May, BurgerFi announced it was exploring strategic alternatives to improve its financial situation, including potential partnerships or asset sales. At that time, the company entered a forbearance agreement with lender TREW Capital Management Private Credit and private-equity firm L Catterton. However, that forbearance agreement has since expired, leaving BurgerFi in a precarious position.

With the expiration of the agreement, BurgerFi’s senior lender is now entitled to demand immediate repayment. Should BurgerFi be unable to fulfill this obligation, the lender could exercise its rights to foreclose on the company’s assets. This could result in a complete takeover by the lender, with TREW potentially seizing the chain’s assets and assuming ownership. In its SEC filing, BurgerFi admitted that “there is no assurance” it will be able to meet these obligations.

What Lies Ahead for BurgerFi?

The potential for bankruptcy looms large as BurgerFi’s financial options dwindle. The company’s attempts to restructure, close underperforming stores, and explore strategic alternatives have not yet yielded the stability it needs. If BurgerFi cannot secure the additional liquidity required or negotiate more favorable terms with its lenders, it may have no choice but to file for bankruptcy protection.

The restaurant industry has been hit hard in recent years, with several chains resorting to bankruptcy to reorganize their debts. In fact, August 2024 alone has seen multiple filings, with World of Beer Bar & Kitchen and Buca di Beppo both seeking Chapter 11 bankruptcy protection. Should BurgerFi follow suit, it would be a significant blow for fans of the brand, which has built a loyal customer base with its focus on high-quality ingredients and innovative burger offerings.

Key Takeaways: What Consumers and Investors Should Know

BurgerFi’s financial troubles have escalated, with the company reporting declining sales and significant losses.
The chain has closed numerous underperforming locations, yet these measures have not been enough to restore profitability.
BurgerFi’s liquidity crisis has reached a critical point, with the company warning of a potential bankruptcy filing.
The expiration of a key forbearance agreement has left the company vulnerable to asset seizures by its senior lender.

As BurgerFi navigates this challenging period, its future remains uncertain. The outcome will likely depend on whether it can secure the necessary financial relief or if it ultimately has to restructure under bankruptcy protection. For now, consumers and investors will be closely watching for any updates as the situation unfolds.

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