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Sbarro Closing 155 North American Locations in Comeback Effort

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Sbarro Restaurant
Sbarro, the Melville, New York-based pizza chain, first sought protection from creditors in April 2011, citing slower sales and higher costs for ingredients such as cheese. Photographer: Jay LaPrete/Bloomberg

Feb. 20 (Bloomberg) -- Sbarro, the Italian restaurant chain that’s a fixture in mall food courts, is closing 155 of its locations in North America in an attempt to improve the company’s profitability.

The move is part of a broader plan to boost financial performance under a new management team, according to a statement yesterday. The closings affect underperforming company-owned stores and not franchise locations, Sbarro said.

The chain, based in Melville, New York, is still trying to rebound after emerging from bankruptcy in 2011. Sbarro’s restaurants are concentrated in malls, where slowing traffic and muted consumer spending has taken a toll on food courts. Even as it scales back operations in its home country, the company added South American locations last year.

“Sbarro remains a vibrant and growing brand with more than 800 stores worldwide, including 81 that were opened in 2013,” the company said yesterday in the statement.

The move follows a bankruptcy filing by HDOS Enterprises, the owner of Hot Dog on a Stick -- another restaurant commonly found in shopping malls. That chain “signed some very expensive leases during the booming economy of the mid-2000s,” HDOS Chief Executive Officer Dan Smith said in a statement earlier this month. Hot Dog on a Stick also suffered from a decline in mall foot traffic.

Rise and Fall

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, who were owed about $176 million. Since then, the company hasn’t been successful 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.

The sluggish economy hasn’t been kind to other pizza chains. Uno Restaurant Holdings Corp., another Italian-restaurant company, filed for bankruptcy in January 2010, saying the economic slump had caused more diners to stay home, hurting its 200 U.S. pizzerias.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net

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