After filing for bankruptcy several weeks ago, a large franchisee that operates dozens of Carl’s Jr. restaurants in California is planning to cut loose some of its underperforming locations, according to newly filed court documents.
Sun Gir Incorporated, the lead debtor in a group of affiliated Chapter 11 cases that were filed in early April, has asked for court permission to reject the leases on at least three Carl’s Jr. locations in the Los Angeles area.
As of this week, the restaurants appeared to still be open. But they have been operating at a substantial negative cashflow for the franchisee, as documented in three separate dockets filed in federal court for California’s Central District.
Sun Gir says the underperforming restaurants are burdensome, and that they impose financial losses on the franchisee “without providing sufficient economic benefit,” the filings reveal.
The filings do not explicitly say that the restaurants will close, although that would be the typical outcome for a court-approved lease rejection. The franchisee has stated in the filings that it wants to focus on its more profitable locations as part of a restructuring.
In a separate filing, Sun Gir said that it has hired National Franchise Sales (NFS), a business brokerage firm, to help it sell some of its Carl’s Jr. locations, but it did not specify which ones.
The details of that process are still being worked out, with bids expected to be due in July and an auction potentially scheduled for August.
It’s unclear how many jobs could be lost as part of the restructuring or any resulting closures. Sun Gir and its affiliates own 59 Carl’s Jr. restaurants in California. Together, they employ roughly 1,000 employees.
The debtors are all affiliated with Friendly Franchisees Corporation (FFC), in La Palma, California, which is not directly named in the bankruptcy cases.
FFC and its general counsel did not respond to requests for comment about the fate of the Carl’s Jr. stores.
Why did this Carl’s Jr. franchise go bankrupt?
In court documents, Sun Gir Incorporated cited a number of factors that have contributed to its Chapter 11 bankruptcy.
Carl’s Jr. restaurants within its portfolio have faced increased competition, rising operating costs, and diminishing sales, all of which have added up to “financial distress.”
Sun Gir is also among the restaurant companies that have blamed its precarious financial situation in part on California’s two-year-old minimum wage policy, which requires $20 an hour for workers at fast food chains.
Tellingly, Sun Gir’s bankruptcy filings include detailed financial breakdowns of restaurant operating losses that begin on April 1, 2024—the day the minimum wage policy took effect. The bankruptcy cases were filed the following day.
Recent research on the impact of that policy, including one March study led by an economist at UC Santa Cruz, has found that while fast food wages did indeed increase, some restaurant operators have reduced their work shifts as a result.
Is Carl Jr.’s in trouble?
The bankruptcy filings concern restaurants owned by a single franchisee and do not necessarily reflect the health or appeal of the Carl’s Jr. brand.
Founded in 1941, Carl’s Jr. is known for its charbroiled burgers and other indulgent menu items. The fast food brand is owned by Tennessee-based CKE Restaurants Holdings, the privately held company that also owns Hardee’s.
CKE declined to comment about the franchisee’s bankruptcy or any potential store closures.
Carl’s Jr. has more than 1,000 U.S. locations, mostly in western states, with California being the state with the most Carl’s Jr. locations.
How many restaurants are at stake in the bankruptcy?
Friendly Franchisees Corporation says on its website that it operates 65 Carl’s Jr. locations, but its affiliated bankruptcy cases have stated 59 locations: 52 in Southern California and 7 in Northern California.
It’s not entirely clear what accounts for the discrepancy. Sun Gir said in a court filing that one of its locations in North Hollywood closed two years before its bankruptcy petition. It’s possible that others have closed in recent years.
Which Carl’s Jr. locations are closing or being sold?
Sun Gir told a court that it wants to reject the leases on three underperforming locations. It did not respond to questions about whether the locations will be permanently closed or sold to another entity. The addresses are as follows:
- 19400 Ventura Blvd, Tarzana, CA 91356
- 165 E Duarte Rd Arcadia, CA, 91006
- 573 N Azusa Ave Covina, CA 91722
All three of these stores have been around for many years. The oldest of the leases, for the Arcadia store, dates back to the year 2000. However, that store suffered a net operating lose of $403,003 over a two-year period between April 2024 and March 2026, a court filing reveals. That makes it the biggest lossmaker of the three locations.
For now, it’s unclear if additional locations could be impacted by future lease rejections. We’ve asked FFC for more details and will update this story if we hear back.
This story is developing . . .
