flickr: Joe Wolf
Sales are headed in the wrong direction at Joe's Crab Shack.

Joe's Crab Shack, Brick House Face Murky Future

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Sales dropped double-digits at both brands in the first quarter.
By Danny Klein May 2017 Chain Restaurants

Ignite Restaurant Group’s Securities and Exchange Commission filings revealed some alarming sales declines during what appears to be a transitional period for the parent company of Joe’s Crab Shack and Brick House Tavern.

During the first quarter of 2017, comparable restaurant sales plummeted 14.3 percent year-over-year at Joe’s and 12.6 percent at Brick House.

Ignite said the declines are primarily due to decreased guest traffic. “In order to reverse these negative trends, we have deployed many different operational strategies, but so far none have had a meaningful impact on sales or guest traffic. The biggest declines in sales and guest traffic continue to be on weekends. We will continue to evaluate our menu offerings and look for value offerings that could increase sales and traffic as well as improve the value proposition for our guests,” the company said.

Guest traffic is a concern across the industry. Casual dining as a whole dropped 4.1 percent in the last six months of 2016 and is down 2.9 percent so far this year. An improvement by slim margins.

Ignite has revealed several strategies in recent months, including selling either one or both of its brands—together or separate—closing stores, and possibly filing for bankruptcy. All of those options were brought up in the filing.

“We are currently in discussions with our lenders in connection with our pursuit of various strategic alternatives to improve our capital structure. It is possible that even a successful implementation of one of the strategic alternatives that we are pursuing will require us to make a filing for protection under Chapter 11 of the U.S. Bankruptcy Code,” Ignite wrote.

As of April 3, there were 112 Joe’s and 25 Brick House stores, down from 130 and 26, respectively, from March 28, 2016. Average weekly sales decreased $5,000 at Joe’s and $9,000 at Brick House in that time.

Revenues fell 20.9 percent at Joe’s to $76.1 million in the first quarter versus $96.2 million in the first quarter of 2016. Brick House reported a 12.4-percent drop to $19 million versus $21.7 million.

“We have continued to experience declines in comparable restaurant sales and income from operations at Joe’s and Brick House. We have closed underperforming restaurants and implemented cost reduction measures to help mitigate the effect of these declines and improve our financial position and liquidity,” the company said. “In late 2016, we engaged a financial advisor to assist us in evaluating various strategic alternatives potentially available to us. As part of this ongoing evaluation of strategic alternatives, on April 3, 2017, we announced that our Board of Directors, working together with our management team and our financial advisor, has commenced a process to pursue the sale of our business, which could be sold as an entirety or through the separate sales of Joe’s or Brick House.”

Ignite admitted that all of its efforts might still not be able to turn things around and avoid bankruptcy. “It is possible that even a successful and efficient implementation of the recapitalization initiatives we are pursuing will require us to make a filing for protection under the U.S. Bankruptcy Code,” it said.

This is true of shuttering more units as well.

“Additional declines in the operating performance at Joe’s or Brick House could cause us to close or sell more restaurants which may require us to recognize additional assets impairment or closure-related expenses and increase our valuation allowance during 2017 against some or all of our deferred tax assets,” the company said.