On Thursday, as we reported, the large Popeyes franchisee Sailormen filed for bankruptcy. By that afternoon, Peter Perdue, the company’s president, sent an email to the company’s franchisee base, assuring them that this was not indicative of the brand’s per-store profitability.
“There are a variety of reasons behind their filing today and it’s really up to them to speak to it, but they have been clear this has had nothing to do with the power of the Popeyes brand, or the Popeyes system’s strong unit economics, as evidenced by continued success in a large majority of their restaurants,” Perdue said in the message, seen by Restaurant Business.
Popeyes has plenty of reason to be concerned about the implications of this particular bankruptcy filing.
Popeyes is coming off a tough year. Same-store sales declined in the first three quarters. Executives with parent company Restaurant Brands International expected better performance, and by November tapped Perdue, who had been chief operating officer with Burger King, to fix it.
Perdue this very week overhauled the chain’s senior leadership team. So suffice it to say a large-scale bankruptcy filing doesn’t exactly look good. We “can confidently tell you that Sailormen’s announcement does not reflect the healthy unit economics you are experiencing in your restaurants.”
Indeed, Sailormen’s bankruptcy filing certainly looks like a financial management problem and not a brand-is-in-trouble problem.
The company has a lot of debt. It owes $130 million in principal and interest to BMO, its senior lender. That comes out to be about $1 million per location. The company also had a lot of leased locations and was a big user of sale-leasebacks.
Or, as Perdue noted, the operator had “more leverage than is common in our current Popeyes system.”
The loans were largely taken out in 2020 and 2021, when Popeyes as a brand was on fire and interest rates were still low. The operator and their financial sponsor likely expected the company to continue to generate strong sales and performance and made a corresponding bet.
Yet inflation took off, prompting the U.S. Federal Reserve to raise interest rates, which hammered operator profitability while increasing the cost of debt and lowering restaurant company valuations. Popeyes’ sales, meanwhile, slowed considerably as the euphoria from its 2019 Chicken Sandwich introduction died off. And suddenly that debt looked really bad.
Sailormen began having problems paying its bills as far back as 2022, according to court filings. A 2023 sale of 16 locations in Georgia fell through, which hurt its cash flow. The company last year tried selling 32 locations in the Jacksonville, Florida area, but that deal never led to an agreement.
The company had been sued by a number of vendors over unpaid bills, including a lawn care provider who said he wasn’t paid for work done in 2024.
BMO, in its lawsuit, said that Sailormen was effectively insolvent. Sales were down 4.5% last year through September, according to court documents. Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, declined 13.2%. Corporate overhead expenses were 20.2% higher than budgeted. Sailormen had stopped making loan payments in 2024
The franchisee couldn’t make those payments, BMO said in its lawsuit, noting that if the franchisee simply reimbursed the lender for its professional fees and costs “it would have literally no cash left for operations—including payroll.” Sailormen certainly can’t fund store remodels.
All of this is putting pressure on Popeyes and its new management team as they work to right the chain’s ship.
But it’s all yet another lesson in why franchisors need to pay heed to their franchisees’ finances and ensure those operators aren’t relying so heavily on debt, especially when those franchisees are large-scale organizations. Brands typically leave such decisions up to the franchisees, but enforcing financial performance metrics makes some sense.
Bankruptcies like this don’t just stress management teams. They raise questions among operators who worry that they may see other such filings, as Perdue’s letter indicates. And when those operators have financial problems, they don’t do things like remodel units or fix stores and they cut costs, which can hurt a brand’s reputation.
It’s every bit as important, in other words, as whether the operator can effectively track inventory or train employees or keep coolers clean.