Franchise Group Inc. (FRG), which owns brands including The Vitamin Shoppe and Pet Supplies Plus, filed for Chapter 11 bankruptcy on Sunday, unveiling a plan to restructure and shut down its discount furniture chain, American Freight.

FRG’s Delaware-based bankruptcy filing listed nearly $2 billion in debt, capping months of financial struggles and disruptions linked to its backer, B. Riley Financial, an investment bank.

Under the restructuring plan, FRG will continue operating all brands except for American Freight, which it says has faced “sustained inflation and macroeconomic challenges in the large durable goods sector.”

Store closing sales began this week at American Freight’s approximately 330 U.S. locations and on its website.

American Freight is ranked No. 233 and The Vitamin Shoppe is No. 281 in Digital Commerce 360’s  Top 1000 database. The database ranks North America’s largest online retailers by annual web sales.

Despite bankruptcy, major Franchise Group brands to continue operation

To navigate its debt, FRG has reached a deal with 80% of its senior debt holders. Those holders agreed to swap debt for 100% equity in the reorganized company. As part of the agreement, the first-lien lenders have committed $250 million in debtor-in-possession financing, according to a company news release.

“Today’s announcement to de-lever our balance sheet is a pivotal step forward in enabling our market-leading businesses Pet Supplies Plus, The Vitamin Shoppe, and Buddy’s Home Furnishings to realize their full potential,” Andrew Laurence, president and CEO of of FRG, stated in the release.

FRG noted that the $250 million in Chapter 11 financing, combined with existing cash reserves, will provide it “with ample liquidity to maintain operations across its businesses and fulfill go-forward commitments to employees, customers, vendors, franchise partners, and other stakeholders of FRG, Pet Supplies Plus, The Vitamin Shoppe, and Buddy’s Home Furnishings in the ordinary course.”

Per a Bloomberg report, FRG received temporary court approval on Wednesday to access the $250 million loan. The loan will the company to keep operations going while it explores potential sales. A final court decision on the financing, which includes refinancing $500 million in older debt, is expected in the coming weeks.

Notably, Franchise Group’s Chapter 11 filing excludes franchise locations of Pet Supplies Plus, The Vitamin Shoppe and Buddy’s Home Furnishings. Of the 620 U.S. Pet Supplies Plus locations, around 400 are franchise-owned, according to Retail TouchPoints. Meanwhile, The Vitamin Shoppe has been growing its franchise presence since its first location opened in 2022. The retailer continues to operate the majority of its 700+ stores directly.

Legal issues stall debt reduction efforts

Franchise Group went public in 2019, the same year it acquired The Vitamin Shoppe for $208 million and American Freight for $450 million. It expanded again in 2021 with the $700 million purchase of Pet Supplies Plus.

The following year, FRG attempted to acquire Kohl’s, though the bid ultimately failed.

In September 2023, the company returned to private ownership via a $2.6 billion management-led buyout. That move was facilitated by founder and former CEO Brian Kahn, with backing from B. Riley.

Following the buyout, Kahn continued to oversee FRG’s operations but stepped down in January amid a criminal investigation into alleged securities fraud linked to the collapse of Prophecy Asset Management. While Kahn has denied any wrongdoing, FRG said the probe has hindered its recovery efforts, deterring potential buyers as inflation and rising costs also weighed on its brands.

In February, FRG managed to sell Sylvan Learning, though further asset sales stalled, in part due to legal issues surrounding Kahn.

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