Pizza chain Sbarro files for bankruptcy protection

NEW YORK Mon Mar 10, 2014 2:02pm EDT

1 of 5. A Sbarro restaurant is seen in the Times Square section of New York March 10, 2014.

Credit: Reuters/Shannon Stapleton

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NEW YORK (Reuters) - Pizza chain Sbarro LLC has filed for bankruptcy protection for the second time in three years after struggling with too much debt and fewer customers in malls that house many of its restaurants.

Lenders would take control of the Melville, New York-based company under a "pre-packaged" Chapter 11 reorganization, which Sbarro on Monday said could allow it to made a "quick exit" from bankruptcy before May 7.

Sbarro expects to cut its debt load by more than 80 percent, and said nearly all its lenders support its restructuring, which requires court approval. The company will invite other buyers to submit better offers.

Founded in 1956, Sbarro had tried to boost sales by revamping its recipes to entice diners who increasingly favor "fast casual" chains such as Chipotle and Panera Bread.

But an "unprecedented decline in mall traffic" and an "unsustainable" balance sheet necessitated a restructuring, including the closure of hundreds of restaurants, Chief Financial Officer Carolyn Spatafora said in a court filing.

"Sbarro has been stuck with an outdated business model," said Michael Whiteman, a restaurant consultant and president of Baum & Whiteman LLC in Brooklyn, New York. "Its biggest shortcoming is that it sells food that has been sitting out for a while, and more people want food made to order."

The company said it recently closed more than 180 money-losing restaurants, and expects to shed about 50 more locations.

It said it now has 799 restaurants in over 40 countries, employing more than 2,700 people. Sbarro said the bankruptcy does not affect the 582 restaurants owned by franchisees.

Last month, the company announced plans to close 155 of its 400 company-owned restaurants in North America.

Sbarro was founded in Brooklyn by Gennaro and Carmela Sbarro, a married couple who had immigrated from Naples, Italy.

It expanded in the New York City area before launching in 1967 its typical restaurant format, which includes an open kitchen and lets customers serve themselves.

NECESSARY STEP

Sbarro and 33 affiliates filed for protection from creditors with the U.S. Bankruptcy Court in Manhattan.

The company reported assets of $175.4 million and liabilities of $165.2 million. It plans to shed $140 million of secured debt in the reorganization. Advisers include Moelis & Co, Loughlin Management and the law firm Kirkland & Ellis.

Sbarro previously filed for bankruptcy protection in April 2011, and emerged from Chapter 11 the following November.

"The board and senior management team are committed to ensuring Sbarro's future growth and success and today's filing is a necessary step," Chief Executive David Karam said.

Karam joined Sbarro last March from the hamburger chain Wendy's Co (WEN.O), where he was a president.

Whiteman said Sbarro may face an uphill struggle.

"I don't know that it has a sustainable business over the longer term," he said. "The way to turn the company around in the short haul is to get out of money-losing leases and close stores, which it has been doing."

The case is In re: Sbarro LLC, U.S. Bankruptcy Court, Southern District of New York, No. 14-10557.

(Reporting by Jonathan Stempel in New York; Editing by Jeffrey Benkoe, Phil Berlowitz, Paul Simao and Sofina Mirza-Reid)

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Comments (14)
HiDesert wrote:
Their pizza tastes horrible and the portions are small and expensive. The spaghetti is watery and cheap. This is why people stopped going to their restaurants.

Mar 10, 2014 2:53pm EDT  --  Report as abuse
BrookfieldGuy wrote:
Or maybe it was lousy pizza.

Mar 10, 2014 2:54pm EDT  --  Report as abuse
rts18202 wrote:
The product is just not very good anymore. Their Houston Memorial City Mall food court location just sits there. Businesses next to them have lines. Potential customers walk up, look and walk away. Years ago, I liked them. But, now their food is skimpy, looks like it has been sitting out for hours if not days. Time, bad management and poor food has done them in.

Mar 10, 2014 3:02pm EDT  --  Report as abuse
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