Cracker Barrel Old Country Store has decided not to rescue Punch Bowl Social (PBS) from foreclosure, citing "substantial uncertainties" about the brand and the need to sustain its core business and Maple Street Biscuit Co. during the COVID-19 crisis.
In a securities filing Wednesday, Cracker Barrel said all 19 PBS units have already closed and substantially all employees have been laid off.
The move puts the future viability of PBS in substantial doubt. Punch Bowl's lenders declared the company in default on its loan on Friday and that they intended to foreclose on the chain's assets.
But PBS founder Robert Thompson said in a statement to Restaurant Business that the concept "is continuing to collaborate with our lender, CrowdOut, and is working now to be in a strong position for our future re-openings, nationwide."
Cracker Barrel opted not to invest further resources to prevent the foreclosure. “In keeping with the company’s strategy to concentrate its resources on its core business during the pandemic, and in light of the substantial uncertainties surrounding the Punch Bowl Social business coming out of the pandemic, the company has decided not to invest further resources to prevent the foreclosure or otherwise provide additional capital to” PBS, Cracker Barrel said in the filing.
Cracker Barrel said it will use money that might have otherwise gone to PBS to sustain its 664-unit namesake business and 28-store Maple Street as takeout-and-delivery-only operations during the pandemic. It suggested in the securities filing that fundamental problems with PBS were exacerbated by the COVID-19 epidemic. It did not provide details about those issues.
"We find it difficult to judge the decisions made by anyone trying to survive the global COVID-19 pandemic," Thompson said. "We are all navigating new terrain and doing our best to simply survive."
A “significant majority” of Cracker Barrel and Maple Street stores will continue to operate as takeout-and-delivery-only facilities until the coronavirus crisis passes, the filing stated.
The company said it will take a $133 million impairment charge to cover its 58.6% stake in PBS.
Cracker Barrel said it has about $400 million in cash and cash equivalents from its revolving credit facility to sustain its two surviving chains. The company also said it would defer its dividend payment announced earlier this month and suspend all future dividends "until further notice." The company also said it would suspend its share repurchases.
Cracker Barrel's decision to pull its support from Punch Bowl comes less than one year after the family-dining chain surprisingly announced its investment in the growth concept. Cracker Barrel's initial deal would have invested up to $140 million in Punch Bowl and gave it the right to buy the chain outright.