Bojangles’ is closing restaurants and dropping some menu items. Is a sale next?

In Charlotte, Bojangles’ is a household name.

Its iconic yellow chicken-and-biscuits boxes are staples at tailgates around Bank of America Stadium. The Bojangles’ name adorns a coliseum near uptown. The brand has a cult-like following in the Carolinas that rivals Wawa in Pennsylvania, Dunkin’ Donuts in Boston and In-N-Out in southern California.

But the local chain has been beset with a number of challenges since going public in 2015, and experts say Bojangles’ could soon be a takeover target.

An ownership change at Bojangles’ would come as the local chain is still looking to replace its CEO. Clifton Rutledge, a former executive at Texas-based Whataburger, stepped down abruptly in March after about four years as Bojangles’ CEO.

Earlier this month, Bojangles’ reported that its quarterly profit had slumped over 71 percent. In an effort to improve the chain’s financial health, executives laid out a number of initiatives, including closing underperforming restaurants, eliminating unpopular menu items and re-examining the company’s expansion plans.

All of those measures could be ways Bojangles’ is “clearing the decks” for a takeover, C.L. King analyst Michael Gallo told the Observer this week.

“I do think Advent is going to have to do something between now and the end of the year,” Gallo said, referring to Advent International, the private equity firm that owns the majority of Bojangles’ shares.

Advent bought its majority stake in Bojangles’ in 2011 from Falfurrias Capital Partners, the private equity firm co-founded by former Bank of America CEO Hugh McColl that owned Bojangles’ for about four years. Advent declined to comment for this story.

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Closing restaurants, changing the menu

When it went public, Bojangles’, founded in Charlotte in 1977, laid out an expansion plan that included filling out its core in the Carolinas, then opening restaurants in adjacent markets after that. Some new markets in recent months for Bojangles’ include Mobile, Ala., north Florida and Washington, D.C. The company has also said it plans to expand into Ohio and Indiana.

Now, it looks like some of the places it opened in adjacent markets aren’t doing as well as they are in the Carolinas, where the Bojangles’ brand is widely recognized.

In its most recent earnings report, Bojangles’ said it closed 10 company-operated stores in four states in its adjacent markets, including Alabama, Kentucky, Tennessee and Virginia.

“There are no restaurants scheduled to be closed in the Carolinas. Bojangles’ has 760 system-wide restaurants, and fans are encouraged to visit one of our other nearby restaurant locations in those markets,” spokesman Brian Little said.

“We are working to relocate as many affected team members as possible to jobs at other area Bojangles’ restaurants.”

The chain likely doesn’t want to repeat a mistake that it made decades ago: After expanding outside the Southeast in the 1980s, Bojangles’ shrank to fewer than 200 restaurants. Now, Bojangles’ has 766 restaurants, which includes 325 company-operated locations and 441 franchised locations.

Part of the problem is a lack of brand recognition in some new markets, said Gallo, the analyst. Also hurting Bojangles’ is the fact that it is “well behind” on its technology efforts, Gallo wrote in a recent report. The company launched its BoRewards app at company -operated restaurants late in 2017, and it only has about 70,000 downloads to date.

Another problem for Bojangles’ is that breakfast, which comprises about 40 percent of Bojangles’ sales, is tough to make popular in new markets, he added.

According to the NPD Group, the growth of the breakfast category has slowed in recent years for fast-food restaurants. Bloomberg reported this summer that Subway is allowing its franchisees to opt out of selling breakfast.

“Breakfast just by its nature is generally a lot harder to break into because it’s so habitual,” Gallo said.

Also in its recent earnings call, interim CEO James “Randy” Kibler, who headed the company from 2007-2011, said that Bojangles’ is getting rid of four “very slow moving” menu items — jambalaya bowl, smoked sausage biscuit, barbecue pork sandwich and Cheddar Bo Biscuit — at company-operated restaurants.

“We think (removing the four items) will help us increase the speed of service, raising the quality of our existing menu items and lessening our menu complexity as well as reducing waste,” Kibler said.

Another plan Bojangles’ has outlined is to re-franchise about 30 company-operated restaurants. Re-franchising refers to brands flipping company-owned stores to franchisees, and it’s done to reap a bigger profit. “It’s more profitable for a company to sell the right to operate a brand than it is to sell food to diners,” according to a report in the trade publication Restaurant News.

Gallo, of C.L. King, wrote in a February report that “given its recent underperformance,” Bojangles’ could be a takeover target for Inspire Brands, the restaurant group that Arby’s formed when it acquired Buffalo Wild Wings. Inspire is owned by the Atlanta private equity firm Roark, which tried unsuccessfully last year to buy Popeyes, a friend chicken chain that competes with Bojangles’.

Roark owns a number of other fast-casual restaurant chains, including Cinnabon, Culver’s, Jimmy John’s and Arby’s.

The firm could not be reached for comment, and Little, Bojangles’ spokesman, said the company does not comment on corporate development.