Winchell’s Says Board May Sell ‘Donut Houses’
Winchell’s Donut Houses, which has been struggling to boost sales and profits, said Thursday that it might put itself up for sale.
The news was met with enthusiasm on Wall Street. The La Mirada-based company, which is organized as a limited partnership, posted the largest percentage gain--27.2%--on the New York Stock Exchange. Winchell’s units, which are comparable to shares, rose 75 cents to close at $3.50.
The announcement came one day after TW Services, which owns 42% of Winchell’s, agreed to be acquired by a New York investment firm in a deal valued at $1.65 billion. But executives said the potential sale of the 657-store doughnut chain is not related to the TW takeover by Coniston Partners.
“Winchell’s clearly is something that the company has had some difficulty with,” said Gus Oliver, a general partner with Coniston. “We certainly support the selling of it. It’s best disposed of.”
TW also owns Denny’s coffee shops and El Pollo Loco restaurants, both of which Coniston has said it intends to keep.
In a brief statement, Winchell’s said that a special committee of its board had “been appointed to consider various methods of maximizing unit holder values, including a possible sale of the partnership.”
The market value of Winchell’s, based on the closing price of its units Thursday, is nearly $30 million.
Terrence J. Wallock, general counsel for Denny’s and Winchell’s, said the decision was made to explore a potential sale after “we received a number of unsolicited inquiries about the company.”
Wallock would not identify any person or group.
“We definitely wouldn’t be interested in buying the whole thing,” said Richard N. Hart, vice president of Boston-based Dunkin Donuts, the nation’s largest doughnut chain. Unlike Winchell’s, whose stores are mostly company-owned, Dunkin’s nearly 1,800 stores are almost all operated by franchisees.
“With their (low) volumes and their difficulty in attracting quality managers, we think the franchise route is much better than running company-owned outlets,” Hart said.
Winchell’s has been beset with financial and legal problems since it was spun off from Denny’s about 2 1/2-years ago. Denny’s sold 58% of the doughnut chain to the public for $90 million.
Rapid Drop in Value
But within months of the sale, Winchell’s reported an $11.5-million loss for 1986. Winchell’s shares, which initially traded at $18, sank to below $4 and numerous shareholders filed lawsuits. The suits are still pending.
Industry officials also said Winchell’s suffered from poor and unattentive management. Under TW, stores began to remodel interiors and introduce new products, such as muffins.
Yet problems remain. For the first three months of 1989, Winchell’s lost $3.35 million on sales of $36.1 million.
Winchell’s was founded in 1948 when Verne H. Winchell opened a single shop in Temple City. In 1968, he sold the company to Denny’s in exchange for stock and became chairman of the chain. He has since left the company.
