After filing for bankruptcy, closing dozens of stores and facing mounting losses, a once-iconic seafood chain is now considering further restaurant closures in an effort to stabilize its business and return to growth.
For many customers, the chain’s financial woes signal the potential end of an era, along with the Cheddar Bay Biscuits and popular Endless Shrimp promotions. Instead, the company has spent the past two years fighting for a comeback, aiming to rebuild its brand and win back customers by restructuring operations and cutting costs.
For nearly 68 years, Red Lobster has been known for serving quality seafood at affordable prices and has expanded to more than 500 locations worldwide. However, the strategy of low-priced, high-quality products that drove its growth eventually became unsustainable.
After closing about 130 restaurants during its Chapter 11 bankruptcy reorganization, Red Lobster is currently reviewing its real estate portfolio and considering more closures in 2026. The goal is to reduce costs and focus on higher-performing markets.
Many of the challenges currently facing the chain date back to 2014, when private equity firm Golden Gate Capital acquired Red Lobster from Darden Restaurants (DRI) for $2.1 billion. To help finance the deal, the company sold its real estate for $1.5 billion in a sale-leaseback deal.
While the move provided short-term liquidity, it left the chain paying significant rent and increased operating costs. According to the bankruptcy filing, annual lease obligations have climbed to about $190.5 million in 2023, or about 10% of its revenue, with more than $64 million tied to underperforming locations.
As of 2024, Red Lobster will have approximately 528 stores. However, some leases bundle multiple restaurants, making it difficult to close weaker stores without affecting stronger ones.
“Much of the liquidity from sale-leasebacks has been used to pay dividends to private equity investors rather than address systemic operational issues or adjust menus and brands to changing market demands,” Gad Allon, professor of operations, information and decision-making at the University of Pennsylvania, wrote on Substack. “This misallocation of resources highlights the risks of prioritizing short-term gains over strategic reinvestment.”
Red Lobster is considering closing more restaurants in 2026. Richard Levine/Corbis via Getty Images ·Richard Levin/Corbis via Getty Images
Since its bankruptcy, Red Lobster has revamped its menu and marketing to better align with changing consumer preferences and evolving trends.
Red Lobster CEO Damola Adamolekun told the Wall Street Journal that sales are up about 10% from last year, although the chain has not yet returned to pre-bankruptcy levels and many stores still need renovations.
The company has been cutting costs in other areas of its business. According to Bloomberg, Red Lobster laid off about 10% of its corporate employees and 200 restaurant employees in late 2025. The Wall Street Journal also reported that the chain is renegotiating with suppliers as seafood prices rise due to tariffs.
Industry analysts warn that aggressive cost cutting could backfire.
Analysts at the Institute for Value Creation Innovation said: “When restaurants cut labor to manage costs, service suffers. When they reduce food quality to maintain profits, customer satisfaction declines. When they postpone maintenance to save cash, the dining experience deteriorates.”
Red Lobster filed for Chapter 11 bankruptcy protection in May 2024 and has accumulated nearly $300 million in debt. The company cited significant financial losses from rising costs, declining consumer traffic and its $20 all-you-can-eat shrimp promotion, which alone contributed to an $11 million quarterly loss.
More restaurant closures:
Four months later, the chain emerged from bankruptcy and is now under new ownership by RL Investor Holdings LLC after receiving court approval of its reorganization plan.
Red Lobster appointed then-36-year-old Damola Adamolekun as chief executive in August 2024 as part of a turnaround, following a series of short-lived CEOs, each lasting less than a year.
Red Lobster isn’t the only company in trouble. Several well-known chains have filed for Chapter 11 bankruptcy between 2024 and 2026.
Many chains face similar challenges, including large footprints, onerous lease obligations, declining foot traffic and high food and labor costs.
According to recent data from the U.S. Bureau of Labor Statistics, the price of food taken away from home increased 4% in the 12 months ending January 2026.
According to the National Restaurant Association, food and labor costs for the average restaurant have each increased about 35% over the past five years.
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To offset these increases, menu prices increased an average of 31% between February 2020 and April 2025, according to the U.S. Bureau of Labor Statistics.
According to Circana, traffic across the foodservice industry fell 1% in the quarter ending June 2025 as prices increased.
“This poses a major challenge to restaurants as home-cooked meals directly displace demand from dining establishments, resulting in reduced revenue and footfall,” said Sujeet Naik, analyst at Coresight Research.
Largely due to soft sales and traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) fell 0.8% in December 2025 from the previous month, the lowest reading since March.
“If you combine pressure on restaurant margins with fragile financials, all you need is a question or two,” Sara Senatore, senior restaurant analyst at Bank of America, told TIME.
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This article was originally published by TheStreet on February 19, 2026, and first appeared in the Restaurant section. Click here to add TheStreet as your preferred source.
