So grim are conditions in the restaurant industry in the US, that shares of Fiesta Restaurant Group Inc (NASDAQ:FRGI) vaulted higher Friday on a NY Post report that the restaurant chain was putting itself up for sale.
The FRGI stock closed Friday at $26.88, up 5.83%, after trading 7.60 million shares. That may be small consolation for shareholders, who have watched FRGI tank to current levels from a high of $69.00 in February 2015 – the result of a brutal shakeout taking hold in the industry.
Fiesta Restaurant Group Inc (NASDAQ:FRGI) looking for suitors
According to the NY Post, Fiesta has put itself on the block and may soon open up its books to prospective buyers. These buyers may include players in the private equity business, the Post said, citing the name of Golden Gate Capital, the owners of California Pizza Kitchen and Red Lobster.
In a sign that trouble was brewing, Fiesta announced February that it was splitting the company by spinning off its Taco Cabana chain.
That plan was jettisoned in September. “Considering the persistent challenging market conditions impacting the restaurant industry as a whole, and constructive feedback from investors, we have decided it is in the best interests of all shareholders to maintain ownership of the Taco Cabana brand,” said Jack Smith, chairman of Fiesta’s board of directors.
That spin-off rather quickly morphed into a sell-out.
Fiesta Restaurant Group Inc (NASDAQ:FRGI) burned by industry glut
The restaurant industry in the US is seeing a massive shakeout, the WSJ wrote over the weekend, due to an overexpansion in capacity, new eating habits and the availability of prepared meals to go.
Così Inc.; Rita Restaurant Corp., parent of the Don Pablo chain, and Garden Fresh Corp., which operates Souplantation and Sweet Tomatoes all filed for bankruptcy within the course of a week.
Sales declines, cost increases, and a relentless increase in new outlets all added up eventually.
There could be more trouble ahead for existing players due to their high debt burdens.
“Many of them are a bad quarter away from folding, despite doing their best to improve and get by,” said Darren Tristano of restaurant data provider Technomic Inc. in a telling comment.