A Kentucky Crumbl franchisee filed for Chapter 7 bankruptcy with more than $352,000 in liabilities after the viral cookie chain shut at least 57 stores amid a sharp sales collapse.
Red Sheep St. Matthews LLC, owned by Richard and Emily Diamond, closed its Crumbl location in St. Matthews, Ky., and petitioned the U.S. Bankruptcy Court for the Western District of Kentucky on Oct. 1 to liquidate assets. The Street reported the filing and the wider slide across the cookie retail sector.
The case lands in a boom-and-bust cycle that turned a social-media favorite into a cautionary franchise story. Rapid post-pandemic expansion met falling unit volumes, weaker foot traffic, and a pile of store listings for sale.
Jason McGowan and Sawyer Hemsley launched Crumbl in Logan, Utah, in 2017 after developing what they believed was the perfect chocolate chip cookie. The brand rode aggressive growth after Covid and, by 2024, was generating $1 billion in annual revenue with unit volumes up 17%, according to figures tied to Restaurant Business coverage in the same report.
By an Oct. 7 website check, Crumbl listed 1,071 locations worldwide and more than 29,000 employees. That scale came with risk. Franchisees poured capital into stores built for viral demand that did not hold.
The Diamonds had owned as many as three Crumbl sites in the Louisville area by February 2024. Their St. Matthews entity is now in Chapter 7, the bankruptcy track used to wind down a business rather than reorganize it.
Unit volumes dropped 16%, from an average of $1.35 million in 2024 to about $1.14 million in 2025. In July 2025 the company unveiled a “dirty sodas” line that executives expected would lift sales by 20% and push unit volumes near $2 million. The drinks did not deliver meaningful revenue.
Conditions worsened in 2026. August sales ran 70% below the same month two years earlier. Placer.ai tracked a 32% year-over-year decline in foot traffic that month. Several franchises called it the worst month in company history.
Operators closed at least 57 stores. Franchisees listed about 55 locations for sale on broker websites. The St. Matthews Chapter 7 filing, with more than $352,000 in liabilities, put one local failure into the public court record.
Crumbl was not alone. Queens, N.Y.-based Chip City also opened in 2017 and grew to roughly 50 locations across eight states. In September 2026 it shut all three of its Connecticut stores, the Hartford Courant reported in material cited alongside the Crumbl figures. Chip City’s sites had not filed for bankruptcy and the chain still planned a New Jersey opening for early 2027.
Cookie retail as a category struggled for two years after the late-2010s viral run. Chains that scaled on novelty and social posts faced the ordinary test of repeat traffic and store-level profit.
Even as closures mounted, another Kentucky group moved forward. Nicholas Jewell, Joshua Jewell, and Raven Turner opened a fourth Louisville-area Crumbl in August 2026 in the Valley Station area on Dixie Highway. The project received $45,000 from the city’s $3 million South End Loan and Investment Fund, which also aided a Longhorn Steakhouse, a Freddy’s, and Derby City Pizza Co.
Public seed money helped cut the ribbon on a new outlet while a nearby franchisee prepared to liquidate. That contrast sits in plain view in the same local market: one ownership group exits through bankruptcy court; another opens with a municipal boost.
Weekly flavors continued on the menu through Oct. 10, White Drop with Hershey’s Cookies ’n’ Crème, Raspberry Cheesecake, Biscoff Ice Cream Cookie, Cinnamon Roll, Chocolate Peanut Butter Brownie with Reese’s Pieces, and Pumpkin Chocolate Chip. Product rotation did not reverse the traffic and volume slide already on the books.
Chapter 7 is not a marketing problem. It is a balance-sheet ending. Red Sheep St. Matthews LLC closed the shop and asked a federal court for permission to liquidate because the liabilities exceeded what the owners could carry.
Nationally, the pattern is familiar. A brand scales fast on trend demand, franchisees sign leases and equipment notes, then unit economics break when visits fall. Corporate count of 1,071 stores can coexist with dozens of dark storefronts and for-sale listings. The employees and local owners absorb the downtime first.
No full docket schedule or itemized asset list appeared in the available reporting, and the petition’s exact case number was not listed. What is clear is the liability floor above $352,000, the Oct. 1 filing date, the Western District of Kentucky venue, and the parallel wave of closures and sale listings across the brand.
Markets still clear excess. When the line out the door shrinks, the lease does not.