After filing for bankruptcy, closing dozens of locations, and facing mounting losses, the once iconic seafood chain is considering closing more restaurants to stabilize its business and return to growth.
For many customers, the chain’s financial woes signaled the potential end of an era, along with its 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 built its reputation by offering affordable, high-quality seafood and has expanded to more than 500 locations worldwide. Yet the very strategy of premium offerings at low prices that fueled its growth eventually proved too difficult to sustain.
After closing about 130 restaurants during its Chapter 11 bankruptcy restructuring, Red Lobster is now reviewing its real estate portfolio and considering more closings in 2026. The goal is to reduce costs and focus on high-performing markets.
Many of the chain’s current challenges 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 assets for $1.5 billion in a sale-leaseback transaction.
While the move provided short-term liquidity, it left the chain with substantial rent-payers, increasing operating costs. By 2023, annual lease obligations had climbed to about $190.5 million, about 10% of its revenue, with more than $64 million tied up in underperforming locations, according to the bankruptcy filing.
Red Lobster ended 2024 with approximately 528 locations. However, some leases bundle multiple restaurants, making it difficult to close weak stores without affecting strong ones.
“A lot of liquidity from sale-leasebacks has gone toward paying dividends to private equity investors or adapting menus and brands to changing market demands, rather than addressing systemic operational issues,” Gad Alon, a professor of operations, information and decisions at the University of Pennsylvania, wrote in Substack. “This misallocation of resources underscores the risks of prioritizing short-term gains over strategic reinvestment.”
Red Lobster is reviewing whether to close more restaurants in 2026. Getty Images via Richard Levine/Corbis ·Richard Levin/Corbis via Getty Images
Since emerging from bankruptcy, Red Lobster has revamped its menu and marketing to better align with consumer preferences and evolving trends.
Red Lobster CEO Damola Admolekun told The Wall Street Journal (WSJ) in an interview that sales are up about 10% from last year, although the chain has not yet returned to pre-bankruptcy levels and many locations still need renovations.
The company has been cutting costs in other areas of its business. By late 2025, according to Bloomberg, Red Lobster will lay off about 10% of its corporate workforce and 200 restaurant employees. The WSJ also reported that the chain is renegotiating with its vendors amid rising seafood prices, in part because of the tariffs.
Industry analysts warn that aggressive cost-cutting could backfire.
“When restaurants cut labor to manage costs, service suffers. When they reduce food quality to protect margins, customer satisfaction declines. When they delay maintenance to save cash, the dining experience suffers,” analysts at the Value Creation Innovation Institute said.
Red Lobster filed for Chapter 11 bankruptcy protection in May 2024, accumulating nearly $300 million in debt. The company cited rising costs, declining consumer traffic, and significant financial losses from its $20 all-you-can-eat shrimp promotion, which alone contributed to the $11 million quarterly loss.
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After receiving court approval for its restructuring plan, the chain emerged from bankruptcy four months later under new ownership by RL Investors Holdings LLC.
As part of its turnaround, Red Lobster appointed then-36-year-old Damola Adamolekun as CEO in August 2024, following a string of short-term CEOs, each of whom served less than a year.
Red Lobster is not alone in its struggles. Several well-known chains have filed for Chapter 11 bankruptcy from 2024 to 2026.
Many of these chains share similar challenges, including large footprints, heavy rental obligations, declining foot traffic, and high food and labor costs.
According to the most recent U.S. Bureau of Labor Statistics data, the cost of meals away from home increased by 4 percent in the 12 months ending in January 2026.
According to the National Restaurant Association, over the past five years, food and labor costs for the average restaurant have each increased by about 35%.
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To offset those increases, menu prices rose an average of 31% between February 2020 and April 2025, according to U.S. Bureau of Labor Statistics data.
As prices rose, customer traffic in the food service industry fell 1% in the quarter ending in June 2025, according to Circana.
“This poses a significant challenge for restaurants, as home-cooked food directly replaces demand from dining establishments, translating into lower revenue and a decline in customer traffic,” said Coresite Research analyst Sujit Naik.
Largely due to softer 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 put restaurant margins under pressure with weak economic conditions, you need one or two things to go wrong,” Sarah Senatore, senior analyst at Bank of America Restaurants, told Time magazine.
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This story was originally published by TheStreet on February 19, 2026, where it first appeared in the Restaurants section. Add TheStreet as a preferred source by clicking here.
