Crumbs Works to Save Cupcake Empire After Chain Shutdown

Crumbs Bake Shop Inc., the cupcake chain that abruptly shuttered its stores this week, is working on a plan to save the business.

The company is in talks with “various interested parties” as Crumbs plans its next steps, Chief Executive Officer Edward Slezak said yesterday in a statement. The deal may hinge on CNBC personality Marcus Lemonis, who has formed an investment group to supply Crumbs with financing en route to a possible acquisition, according to his cable-TV network. Lemonis, who also serves as CEO of Camping World and Good Sam Enterprises, is the star of “The Profit,” a show where he spends millions of his own money to save failing companies.

“We know that everyone has an emotional connection to the Crumbs brand and its products,” Slezak said in the statement. “We’re pleased to be in talks with various interested parties that are allowing us to pursue all of our options for the business, which includes consideration of restructuring alternatives.”

Following the CNBC report yesterday, Crumbs shares rose more than 16-fold to 48 cents in New York. Before the run-up, the stock had fallen 96 percent this year. In today’s trading, the shares gained an additional 50 percent to 72 cents.

Lemonis is working with Fischer Enterprises LLC and would add other holdings such as Sweet Pete’s Candy to a new entity with Crumbs, the network reported yesterday. Lemonis didn’t have an immediate comment. Meg Martin, an outside spokeswoman for Fischer at the Gooden Group, declined to comment on any dealings between the firm and Crumbs or Lemonis.

Licensing Deals

Before closing its stores this week, Slezak had been seeking new sources of revenue, including licensing and franchise deals. The former Aeropostale Inc. executive, who took the reins at Crumbs in January, forged ties with BJ’s Wholesale Club Inc., White Coffee and Pelican Bay Ltd. this year in a bid to boost growth. That included selling its crumbnut, a croissant-doughnut hybrid, at BJ’s warehouse stores.

The efforts failed to turn around the company’s finances, a person familiar with the situation said this week. After getting a $5 million credit line from Fischer Enterprises in January, Crumbs had struggled to obtain additional funds, prompting it to move toward liquidation, the person said. Crumbs, based in New York, reported losses of about $23 million the past two fiscal years.

The rescue plan probably involves a change in business philosophy, including a reduction in its stores, said Peter Saleh, an analyst at Telsey Advisory Group in New York. Crumbs, which originally planned to open as many as 200 stores, has been criticized for growing too quickly.

Brand Equity

“I would think they would keep the brand,” Saleh said. “That’s where all the value is.”

As of April, Crumbs had about 65 locations in 12 states and the District of Columbia. That number shrank to 48 in previous rounds of closings, and this week the remaining locations shut down. Crumbs had about 165 full-time employees as of the end of last year, with 120 working in the stores.

The company, which started in 2003 on Manhattan’s Upper West Side, said in a filing last week that the Nasdaq was delisting the stock. The move is expected to trigger a default on more than $14 million in debts, the company said.

On July 8, when reports of Crumbs’ demise appeared, Lemonis began tweeting them from his personal account, saying “not so fast” and “not yet.”

Fixing Crumbs won’t be easy, though, said Darren Tristano, an analyst at Technomic Inc. in Chicago.

“If it couldn’t make it as a public company, I’m not sure there’s a really strong opportunity for a brand like this to continue among the competition,” he said. “It will become very difficult to find success.”

Before it's here, it's on the Bloomberg Terminal.