By Evie Liu

Many American restaurant chains have filed for bankruptcy in the past year, and more are struggling with debt and shutting down locations. Hooters of America, known for chicken wings and female staff in revealing outfits, highlights the trend.

Hooters filed for bankruptcy protection on Monday amid sluggish sales and mounting debt. The chain's current owner, a private-equity firm, will sell all of the company-owned restaurants to a franchise group, which will help keep many locations open.

Hooters has more than 400 locations across 24 countries. Some are run as franchises and won't be affected by the bankruptcy, the company said. After the bankruptcy process is completed, all of the chain's locations will be franchisee-owned.

Hooters is just one of the well known restaurant chains that have run into financial trouble. Red Lobster, TGI Fridays, and Buca di Beppo filed for Chapter 11 bankruptcy last year, while Bar Louie and On the Border Mexican Grill & Cantina continued the trend in 2025.

The Covid-19 pandemic led to the closure of many restaurant locations, while the inflation that followed raised costs for labor and rent, putting pressure on the survivors. Higher prices have pushed many consumers, already under financial strain, to eat more meals at home.

Foot traffic at restaurants from fast-food companies to casual-dining chains is declining and sales are under pressure.

Deals and promotions have helped deep-pocketed companies like McDonald's lure some customers back. But for restaurants already struggling with weak balance sheets, discounted prices could further cut into profits even as they boost foot traffic. Last year, Red Lobster's "Ultimate Endless Shrimp" promotion ended up cannibalizing sales of other profitable items and led to losses.

Many brands also struggle to stay culturally relevant. Hooters has long faced criticism over its sexualization of female staff. Millennials and Gen Z consumers, especially women, are often turned off by the brand's provocative image, which has made it harder for Hooters to attract a new customer base.

The company has initiated some rebranding efforts in recent years, including ending "Bikini Nights," changes in uniform designs, and family-oriented marketing. But those efforts have faced backlash from its core customer base -- mostly longtime male patrons.

Many restaurants are shutting down underperforming locations to strengthen their cash flow. TGI Fridays closed about 100 U.S. locations in 2024, leading up to its bankruptcy filing. It has shut down at least another 30 since then, cutting its total footprint by half compared with the end of 2023.

Denny's, the breakfast chain, closed 88 locations in 2024, bringing the total to about 1,500 globally by year end. It has said it plans to shut another 70 to 90 in 2025. Other restaurant chains that have been closing stores include Applebee's and Jack in The Box.

Comparing total debt with earnings before interest, taxes, depreciation, and amortization is one way to gauge a company's financial health. A ratio above four is often considered a red flag, indicating the company faces the risk that future cash flows won't be enough for it to handle its debt.

According to FactSet, Denny's total debt was 4.4 times its Ebitda for fiscal 2024, which ended in December. The ratio for Jack In The Box was 5.4, and for Dine Brands Global, the owner of Applebee's and IHOP, it is more than six times, according to FactSet.

To be sure, FactSet often counts lease obligations as debt as well. Companies' own reporting may handle them differently.

Jack In The Box told Barron's that its leverage ratio was 5.2 times as of the end of the three months through January. It said FactSet's inclusion of lease obligations had boosted the ratio as reported by the data service.

CEO Lance Tucker said on the latest earnings call that the company is looking to bring debt down and in the process of evaluating its capital allocation. He said he expects to announce ways to boost free cash flow in the near future, likely on the next earnings call in May.

In its latest earnings report, Denny's said it has about $272 million of total debt outstanding, with a leverage ratio of 3.85 times. Dine Brands reported $1.1 billion in net long-term debt for the end of the quarter ended in December, which is also lower than the $1.4 billion quoted by FactSet.

Denny's and Dine Brands didn't immediately respond to requests for comment. Stock in Jack in The Box has tumbled 60% over the past 12 months, Denny's has plunged 57%, and Dine Brands shares are down 49%.

Write to Evie Liu at evie.liu@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 01, 2025 17:32 ET (21:32 GMT)

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