Sbarro files for bankruptcy as mall traffic dwindles

The food-court pizza chain seeks Chap. 11 protection for the second time in three years, facing higher costs and declining numbers of shoppers.

By MSN Money Partner Mar 10, 2014 11:46AM

Caption: A Sbarro Pizzeria restaurant in the Times Square section of New York. /© Shannon Stapleton/ReutersSbarro LLC, the 800-restaurant U.S. pizzaBloomberg on MSN Money chain, filed for bankruptcy protection for the second time in three years as customer traffic slowed in the shopping-mall food courts where many of its stores do business.

 

The company listed assets and debt of as much as $500 million each in a Chapter 11 petition filed today in U.S. Bankruptcy Court in Manhattan. Melville, New York-based Sbarro said in a statement that it will use court protection to quickly reorganize and close many underperforming stores under a plan already supported by holders of most of its debt.

 

“The agreement among the company’s lenders is an indication of the support and confidence they have in the growth strategies developed by the new management team over the past nine months,” Chairman and Chief Executive Officer David Karam said in the statement.

 

A group of lenders will provide $20 million in financing, and the reorganization plan will eliminate $140 million in debt, Sbarro said. The filing won’t affect its 600 franchises worldwide.

 

The Sbarro family started the company 58 years ago after moving to Brooklyn, New York, from Naples, Italy. MidOcean Partners acquired Sbarro in January 2007 for $417 million. The chain reported losses in 2008 on higher costs for ingredients such as cheese, flour and pasta and filed for bankruptcy in 2011.

 

Overseas expansion

Karam, previously an executive at fast-food chain Wendy’s Co., led a comeback effort after joining Sbarro as CEO in 2013. To offset slow growth in the U.S., where muted consumer spending took a toll on Sbarro’s stores, the company opened 81 new locations overseas in 2013. In February, it closed 155 stores in North America.

 

Restaurant chains including Bennigan’s and Steak & Ale, both owned by Metromedia Restaurant Group, and Buffets Holdings Inc. filed for bankruptcy in the three years before Sbarro’s 2011 filing, hurt by the worst U.S. economic slump since the Great Depression.

 

Uno Restaurant Holdings Corp., also a pizza chain, entered bankruptcy in January 2010. Midland Food Services LLC, the operator of 92 Pizza Hut restaurants in six states, and Commissary Operations Inc., a distributor of food and supplies to chains, also sought court protection.

 

First bankruptcy

Sbarro’s first trip through bankruptcy began in April 2011 and ended in November of that year. Under that reorganization, first-lien lenders gained ownership and the company eliminated 70% of its debt. The earlier Chapter 11 filing listed assets of $471 million and debt of $486.6 million.

 

Unsecured creditors with as much as $173 million in claims got nothing in the first bankruptcy, as an auction drew no bids and was canceled.

 

Standard & Poor’s said in July that Sbarro’s debt was unsustainable after it borrowed to fund cash operating losses. S&P called the pizza market fragmented and competitive. Sbarro is also vulnerable to declines in shopping-mall traffic and the volatility of ingredient prices, the ratings company said.

 

More at Bloomberg.com:

‘Hippie’ grains thrive as Panera looks beyond whole wheat

 

IBM CEO Rometty says company didn’t meet expectations last year

 

Bull market rivals ’90s at half valuation as demand broadens

VIDEO ON MSN MONEY

90Comments
Mar 10, 2014 12:36PM
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This is no surprise the food is awful and expensive.
Mar 10, 2014 12:48PM
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I bet the CEO walks away with a huge wad of compensations, while everyone else gets squat! 
Mar 10, 2014 12:33PM
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All they need to do is reopen under the name Organic Gourmet and the yuppies will flock there eager to pay $5 per slice for arugula pizza.
Mar 10, 2014 12:37PM
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Perhaps they should get out of shopping malls, travel plazas and airports where they can get away with charging $5-6 per slice.  It's obvious that even at that cost it won't support their leases.

Mar 10, 2014 12:51PM
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What a surprise....a pizza slice is $6.00  in the airport $8?

 

last time I went there I learn the true meaning of SCREWED!

 

and the funny part is that at $6 a pizza they still pay worker min wage!

 

MIS-MANAGEMENT!!!!!!!!!!!!!!!!!!!

 

 

Mar 10, 2014 12:53PM
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Hi can I have 6 slives and 6 large Cokes?  Sure that will be $226 dollars.

 

Mar 10, 2014 1:05PM
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Why is this being blamed on the cost of ingredients and poor economy? Perhaps people do not want a 2000 calorie slice of stuffed pizza. 

Sell all their assets pay back the debt holders. Let them die. Support your local restaurants and markets. 

Mar 10, 2014 12:23PM
Mar 10, 2014 1:27PM
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Sbarro's charges way too much money for run of the mill mall food.  It sits too long and isn't fresh!
Mar 10, 2014 12:33PM
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Obamanomics is spreading like a fungus
Mar 10, 2014 1:38PM
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There is a common thread running through the bankruptcies and other failures cited in the article....by and large, these restaurants offered crappy and/or overpriced food and bottom of the barrel customer service.  If lower foot traffic through malls is enough to kill your business in this day and age, then your business model sucks and you deserve to go under.
Mar 10, 2014 12:46PM
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Economy is in the toilet! Can anyone say revolution????
Mar 10, 2014 1:07PM
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I checked one of those places out about 30yrs ago.pizza was like cardboard and the veggies on the salad bar looked great but they were like biting into a piece of wood.am surprised that they made it this long.
Mar 10, 2014 1:00PM
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How come I can't get no Orange Julius around here?
Mar 10, 2014 1:35PM
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They blame it on dwindling mall traffic, maybe the taste and quality of the food has declined and people have just stopped eating there. I ate at an Sbarrro's the other day and the food tasted like crap! I've eaten there enough times over the years to know that the quality and taste of the food has changed. It will be along time before I go back!!!
Mar 10, 2014 12:39PM
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Uhh this isn't Obama's fault, this is the fault of poor management. Most of their workers would not qualify for Obamacare because they are all part time. 
Who let the stupids out of their cages?
Mar 10, 2014 2:15PM
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A family owned & operated business does good for 58 years. A big hedge fund/investment house takes over and bankrupts it in less than four years...........


My Dad owns a small trucking company (27 trucks & trailers) his company hauls mostly food type products, a family owned company he has been working with for 45 years was sold/bought out by a big hedge fund/investment house 2.5 years ago, at the time of sale & before the company was solid & quite profitable, the big boys come in & say "now you are going to go things our way" well........they have managed to alienate most of their supplier's (the ones that aren't PO'ed they own) anyway long story short the directors have filed for bankruptcy, I guess "their way wasn't better."  

Mar 10, 2014 2:55PM
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I think their bankruptcy should be denied unless it includes a clause that terminates the employment of all upper corporate management with no compensation, retirement benefits, or golden parachutes and replace them.
Mar 10, 2014 3:03PM
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Kind of makes me think of Washington D.C. but  I guess the difference is that Sbarro doesn't have taxpayers and a printing press to fund their deficit indefinitely.
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