Hamlets’ Stock Lacks Founders’ Luster

‘Is there any place you’ve heard of you’d like to try?’

‘Actually I’d like to go back up to the Hamburger Hamlet on Sunset.’

‘I thought you were a fancy eater.’

‘I am. And a plain one. And a big one. I like Hamburger Hamlets.’

--From a conversation in “A Savage Place,” a Spenser novel by Robert B. Parker.

It was Wednesday night at Kate Mantilini, a new Beverly Hills steak and chops restaurant. The place had only been open a few weeks and there’d been no advertising, but people were already standing in line.

“I wait for them to wait in line. It’s thrilling,” said Harry L. Lewis, eyeing the crowd. He’s president of Hamburger Hamlets Inc., based in Sherman Oaks, which owns the Kate Mantilini restaurant, a departure from the standard Hamburger Hamlet model.

Harry Lewis, 67, and his wife, Marilyn, 56, the company’s chairman, have a good record of filling up their restaurants--there are 24 now--with crowds drawn in part, perhaps, by the Lewises’ celebrity profile. National magazines have run stories about how Marilyn Lewis manages the company from pool-side at her Beverly Hills home. Their friends include members of the film community. Director Howard Koch (“The Odd Couple”) is on Hamburger Hamlets’ board of directors.

But the Lewises, who own 72% of the stock in Hamburger Hamlets, have promoted themselves better than they have promoted the company to the financial community. “That hasn’t been our main interest. Our efforts have been put into operating this day to day,” Harry Lewis said.

As a result, there’s not much interest in the stock.

Only two institutions, American National Bank in Chicago and Wells Fargo, own any noticeable amount of Hamburger Hamlets stock, and they own less than 1%. The Chicago bank says it owns Hamburger Hamlet stock only because it offers clients a stock index fund, and so owns a wide variety of stocks hoping to match the overall stock market. The bank’s investment in Hamburger Hamlets is virtually an afterthought.

Things may finally be changing. Last summer Hamburger Hamlets had a four-for-one stock split, putting enough shares in the public’s hands to get listed on the nationwide NASDAQ exchange. The stock has crept up, closing Monday at $5 a share, up from an adjusted range of $4.75 to $3.50 early last year.

What a higher profile might mean isn’t clear. Hamburger Hamlets could go private, sell out to a bigger firm, or continue as a public firm.

If it does stay public, it’s clear that the Lewises have some work to do. No financial analysts follow Hamburger Hamlets. Jeff Poppenhagen, an analyst with Wedbush, Noble, Cooke in Los Angeles, gave it a try.

“A little while ago they had pretty decent earnings and nothing happened to the stock, and nobody could understand why,” he said. “They have a well-known Southern California name, and it’s the kind of stock we’d like to see much more happen to. But there was no information forthcoming. I called them at the company and didn’t get any response.”

For investors, though, this is a crucial time for Hamburger Hamlets. In the past 18 months the Lewises have opened four restaurants, each a change from the Hamburger Hamlet blueprint, at a total cost of $8 million, thus loading up the company’s debt.

Last December, the close of its most recently reported quarter, Hamburger Hamlets had a $537,000 deficit in working capital because its current liabilities exceeded its current assets.

Kate Mantilini, the newest place, cost $2.5 million to open. The restaurant has an eclectic menu--frogs legs to macaroni and cheese--and seeks upscale customers. Its spiffy interior is dominated by a mural of the Hagler-Hearns boxing match.

Thus far the four new restaurants seem to be doing well. Paul Brockman, the company’s chief financial officer, expects sales will hit $50 million by next year, up from $39 million in 1986. Then the company will pause, Harry Lewis said, to digest the added debt.

That has been the company’s history: to expand, then pause. But it also points up a recurring weakness. The company’s small size prevents it from taking full advantage of its markets.

There is, for example, only one company restaurant in Chicago, and only four in the Washington area. There is ample room to add restaurants in both cities.

“That’s another reason to be interested perhaps in somebody who might like to acquire the company. Then there will be an infusion of capital, and we can move ahead as fast as we would like,” Harry Lewis said.

The Lewises have thought of selling Hamburger Hamlets to a bigger company before. A decade ago, they nearly sold to Ramada Inns for $14 million, with the idea they would continue to head up the Hamburger Hamlets operation.

For any potential buyer, Hamburger Hamlets offers an asset play. The company owns several pieces of real estate, including the building in Chicago that houses its restaurant. Carried on the company’s books for $2 million, the building, in Chicago’s fashionable north side, is now worth, Brockman said, about $8 million.

Another possibility is to go private. “We could’ve done that once upon a time. I suppose we could still do that,” Harry Lewis said. To buy the remaining 28% of the company’s stock at a 20% premium over the current stock price would cost the Lewises about $6 million.

Or the Lewises might finally hit the financial circuit and talk up the company with analysts. Harry Lewis conceded that his son, a stockbroker, teases him for not doing more to pump up the stock.

But then, Hamburger Hamlets is a public company that is all but run like a private family business.

In 1950, Harry Lewis, a moderately successful actor who played a gunman in “Key Largo,” and Marilyn opened their first restaurant on Sunset Boulevard. They started out with $3,500, eventually making their fortune and reputation by fashioning the gourmet hamburger. The company went public in 1969, and the Lewises’ stock is now worth about $14 million.

Marilyn Lewis oversees the restaurants’ menus and furnishings. Hamburger Hamlets tend to be heavy on red-leather booths, etched glass, theater playbills and theatrical photos (Barrymore and Garbo, for instance).

Harry Lewis, meanwhile, is the impatient detail-watcher. At Kate Mantilini the other night, the overhead lights suddenly flashed. “What are they doing?” he said, jumping up to investigate.

Later, he urged a visitor to try the crab cakes and the appetizer of smoked fish dip. For the main course, how about the pepper steak and some mashed potatoes? “Like your mother used to make,” he said. And isn’t the sourdough bread good, he asked? Some dessert? Try the icebox lemon pie. “Everything is wonderful,” he suggested.

Their restaurants, in fact, have consistently attracted the restaurant cognoscenti. Robert B. Parker, author of the popular Spenser series of detective novels, mentioned Hamburger Hamlets in “A Savage Place.” When Spenser, a private eye-cum-gourmand, is in Los Angeles on a case, a client asks, “Is there any place you’ve heard of you’d like to try?”

“Actually I’d like to go back up to the Hamburger Hamlet on Sunset.”

. . . “I thought you were a fancy eater.”

Spenser replies: “I am. And a plain one. And a big one. I like Hamburger Hamlets.”

The public likes them too. In good years, the company earns a respectable 4% after-tax profit.

The Lewises aren’t hurting, either. Consider the 1986 fiscal year. On $38.9 million in sales, Hamburger Hamlets earned $1.7 million. That same year, Harry and Marilyn Lewis took home some $831,560, the equivalent of 48% of the company’s profits.

They received $498,620 in combined salaries, another $103,340 in stock dividends, and the remaining $229,600 in rent. Rent? The company’s headquarters building is owned by, who else, the Lewises.

“They treat themselves very generously for an organization that size,” said the manager of a local compensation-consulting firm.

“Without the Lewises, the company would not grow the way it is,” countered Brockman.

Indeed, in the restaurant business, where the failure rate runs about 85%, the Lewises are proud to have stayed in business 37 years.

“We’re at a very exciting point in our business career. It can go any way,” said Harry Lewis. But only the Lewises know what direction that is.

HAMBURGER HAMLETS INC. AT A GLANCE

Hamburger Hamlets Inc., based in Sherman Oaks, operates 24 restaurants including the Hamburger Hamlet chain. THe company has 1,600 employees and has 3.6 million shares of common stock outstanding.