Sbarro Said to Prepare Bankruptcy Filing as Mall Traffic Slows

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Sbarro Said to Prepare Bankruptcy Filing as Mall Traffic Slows

2014 Feb 28, 9:46am 3,976 views 24 comments

http://www.bloomberg.com/news/2014-03-01/sbarro-said-to-prepare-bankruptcy-filing-as-mall-traffic-slows.html

Sbarro, the Italian restaurant chain that's a fixture in mall food courts, is preparing a bankruptcy filing following a nine-month review of its operations, according to people familiar with the situation.

The move, which could happen in the coming weeks, would let the pizza chain restructure as it struggles with sluggish demand and debt costs, said the people, who asked not to be identified because the matter isn't public.

This filing would represent the company's second trip to bankruptcy court in the past three years. Sbarro first sought protection from creditors in April 2011, citing slower sales and higher costs for ingredients such as cheese. As part of its latest efforts to streamline the company, Sbarro announced plans this month to close 155 locations in North America.

Jonathan Dedmon, an spokesman for the Melville, New York-based company at the Dilenschneider Group, declined to discuss a possible bankruptcy.

“During the past nine months, our new management team and its advisers have been thoroughly evaluating our business,” he said. “We are making significant progress. Sbarro continues to be a strong brand with a bright future.”

Sbarro's comeback has been led by David Karam, who took over as chief executive officer last year. He previously worked as an executive at fast-food chain Wendy's Co.

The pizza company's restaurants are concentrated in malls, where slowing traffic and muted consumer spending have taken a toll on food courts. To offset sluggish growth at home, Sbarro has continued to expand overseas. It has more than 800 stores worldwide, including 81 that opened in 2013.

Founded in 1956 by the Sbarro family, the chain expanded its pizza empire over the decades to more than 40 countries. MidOcean Partners, a New York private-equity firm, acquired the closely held business in 2007 for $417 million. Then came the recession, which meant fewer consumers visiting shopping malls and eating at food courts.

When Sbarro exited bankruptcy in 2011, it agreed to give ownership of the company to senior lenders, which were owed about $176 million. Since then, the company hasn't made enough progress improving its operations, according to a report last month from Standard & Poor's Ratings Services, which downgraded Sbarro's credit rating to CCC- from CCC+.

“We believe that Sbarro's current capital structure is unsustainable and that the company will likely seek to restructure its balance sheet,” S&P said in the report. “In our opinion, this could lead to a selective default or a filing for protection under Chapter 11.”

The pizza market remains fragmented and competitive, increasing challenges for the chain, according to S&P. It's also vulnerable to a broader decline in shopping-mall traffic and the volatility of ingredient prices. The ratings firm has a negative outlook on the company.

Comments 1 - 24 of 24 Search these comments

zzyzzx 2014 Mar 11, 12:28am

http://www.usatoday.com/story/money/business/2014/03/10/sbarro-chapter-11/6252533/

Pizza-maker Sbarro files Chap. 11 bankruptcy

Pizza-maker Sbarro filed for Chapter 11 reorganization Monday, making this the chain's second time in bankruptcy court since 2011.

The bankruptcy filing comes after Sbarro closed 155 of its U.S. locations in February. It still has more than 800 locations in more than 40 countries.

The store closure strategy and the balance sheet restructuring plan is designed to improve its profitability and reduce its outstanding debt by more than 80%, Sbarro said in a statement.

The filing does not affect the 600 franchise locations worldwide, the company said.

Melville, N.Y-based Sbarro filed for bankruptcy protection in April 2011 and emerged a few months later, saying that it significantly cut its debt and received a capital infusion.

Sbarro also had big changes at the top of the company in 2013. After just over a year in the role of president and CEO, Jim Greco resigned in March 2013, according to Nation's Restaurant News. Sbarro said Greco left to pursue other business interests.

The current chairman and CEO is David Karam. Previously he was president of Wendy's International.

A report out last week from Fitch Ratings, noted that privately-held Sbarro, as well as competitor Quizno's, "have lost market share to competitors including Subway, Jimmy John, Gourmet Sandwiches, Little Caesars, and Papa John's."

Its first Chapter 11 filing was a result of rising food costs and a slowdown in consumer spending and mall traffic, says Fitch.

Sbarro was founded in 1956 as an Italian grocery store, according its Facebook profile, and now serves more than 71 million pizzas every year. It is known for locations in high-traffic areas, such as malls, airports, train stations and rest stops.

In addition to very mediocre pizza, it also serves salads, pastas and other hot and cold Italian entrees.

Automan Empire 2014 Mar 11, 12:57am

A business model that depends upon impulse purchasing of poor nutrition food mainly in malls? What could go wrong?

Those creditors who took ownership with a $126m stake must have regrets today.

HydroCabron 2014 Mar 11, 3:43am

The manager and maitre d' should all flash random customers, preferably by pressing their equipment firmly against a window, to spread it out and illustruate the hairy reality of the adult human form.

Flat screen televisions should be installed throughout the restaurant, showing sex tapes of couples 55 and older getting it on.

No one without an exhibitionism arrest should be considered for employment.

zzyzzx 2014 Mar 11, 4:57am

What funny is how some of the articles I see about Sbarro also used the term mediocre pizza, which above was an embellishment on my part.

Dan8267 2014 Mar 11, 5:01am

zzyzzx says

Sbarro Said to Prepare Bankruptcy Filing as Mall Traffic Slows

Now where will I get my shitty pizza? A dumpster? It's not the same, close, but not quite the same.

zzyzzx 2014 Mar 11, 5:04am

Dan8267 says

Now where will I get my shitty pizza? A dumpster? It's not the same, close, but not quite the same.

It's shitty, overpriced pizza.

zzyzzx 2014 Mar 27, 11:22am

casandra 2014 Mar 27, 12:57pm

i like going to the food court, in the rare occasion i visit a mall anymore, just to see how pathetic things are there!

Tenpoundbass 2014 Mar 27, 1:06pm

I've had better pizza from a gut truck.

Lockdownd 2014 Mar 27, 1:24pm

Never has something smelled so good yet tasted so bland.

Y 2014 Mar 27, 2:57pm

I love Sbarro pizza.
I set up family banquets there for the major holidays....
Everyone gushes with delight as the round pies exit the ovens, cheese bubbling with anticipation of being devoured next to ice encrusted diet pepsi's..

zzyzzx 2014 Jul 1, 11:46pm

http://consumerist.com/2014/07/02/sbarro-is-the-worst-fast-food-chain-in-america-because-its-food-isnt-fresh/

Sbarro Is The Worst Fast Food Chain In America Because Its Food Doesnâ€™t Taste â€œFreshâ€

When it comes down to the best and the worst, major chains didnâ€™t fare so well in their signature categories: McDonaldâ€™s came in dead last among burger restaurants; Taco Bell sunk to the bottom in the burrito arena; KFC lost mightily to reigning chicken king Chick-fil-A and Subway was a flop in the sandwich field.

As for the lowest of the low? Money-bleeding, bankrupt Sbarro ranked the lowest out of all 65 restaurants. Surveyed readers said the food â€œwasnâ€™t fresh,â€ and that they â€œdidnâ€™t get good value for their money,â€ Consumer Reports notes.

As Neil Irwin of the New York Times noted in March while calling out Sbarroâ€™s notoriously bad fare as the reason for the companyâ€™s second time around in bankruptcy: â€œYou eat Sbarro not because you want Sbarro, but because it is the food that is available at the moment you want some food.â€

13 anonymous 2014 Jul 2, 12:31am

I have a good idea of what our economy needs to replace all the sq ft used by sbarro

MORE URGENT CARE, PLEAZE!

indigenous 2014 Jul 2, 1:03am

errc says

I have a good idea of what our economy needs to replace all the sq ft used by sbarro

MORE URGENT CARE, PLEAZE

Not the first time I have heard that idea.

The decline in malls may be part of the slow economy, but my guess would be it is mostly demographics.

15 bob2356 2014 Jul 2, 1:09am

errc says

I have a good idea of what our economy needs to replace all the sq ft used by sbarro

Adult day care would probably be more profitable and needed for the boomer generation.

FuckTheMainstreamMedia 2014 Jul 2, 1:34am

I don't get how they were still in business 20 years ago. Their pizza is awful.

indigenous 2014 Jul 2, 1:59am

dodgerfanjohn says

I don't get how they were still in business 20 years ago. Their pizza is awful.

Kickbacks?

Strategist 2014 Jul 2, 2:04am

Dan8267 says

zzyzzx says

Sbarro Said to Prepare Bankruptcy Filing as Mall Traffic Slows

Now where will I get my shitty pizza? A dumpster? It's not the same, close, but not quite the same.

1-800-DOMINOS.

Strategist 2014 Jul 2, 2:07am

indigenous says

errc says

I have a good idea of what our economy needs to replace all the sq ft used by sbarro

MORE URGENT CARE, PLEAZE

Not the first time I have heard that idea.

The decline in malls may be part of the slow economy, but my guess would be it is mostly demographics.

It's probably the usual suspects:
Amazon, Costco and Walmart.
If malls want to make a comeback they need to turn them into entertainment destinations.

indigenous 2014 Jul 2, 2:29am

Strategist says