Sizzler Chain Files for Bankruptcy Protection

Sizzler International, the nationwide steakhouse chain that started 39 years ago in a converted trailer in Culver City, on Sunday filed for Bankruptcy Court protection, the victim of shifting consumer tastes and relentless competition in the budget-priced restaurant business.

Today, the company will close 130 U.S. restaurants and fire 4,600 employees, mostly part-timers.

Sizzler, based in West Los Angeles, will be left with 85 company-owned restaurants and 235 franchised restaurants in the United States--mostly on the West Coast--as well as a large and profitable international operation.

Kevin Perkins, chief executive of Sizzler International, portrayed the bankruptcy filing as a strategic move that would enable the company to escape costly leases on unprofitable restaurants and move ahead with a new format stressing made-to-order grill items and other steakhouse fare.

“We’re trying to get back to the essence of Sizzler, to what made it work,” Perkins said.

In filing under Chapter 11, Sizzler is following other companies that have used the U.S. Bankruptcy Code in a variety of ways: from the commonly seen debt-laden corporation that needs a break from creditors’ demands while it works out a plan to pay its debts, to companies seeking to eliminate labor contracts, to the so-called “prepackaged” bankruptcy in which a company has already negotiated with creditors and is able to emerge quickly from bankruptcy. Sizzler’s case is somewhat unusual because the company is fairly healthy financially.

In Los Angeles and Orange counties, Sizzler is closing nine restaurants employing 321 people. Sizzler will continue to operate 28 restaurants in those counties with 1,073 employees. In San Diego, seven restaurants employing 256 people will close.

The largest number of employees--1,161--will be laid off in Northern and Central California, where Sizzler is closing 32 restaurants. Second is the Baltimore/ Washington, D.C., area where 25 Sizzler restaurants will close and 906 employees will lose their jobs.

Sizzler also is closing six restaurants operated under the name Buffalo Ranch Steakhouse. After the restructuring, Sizzler or its franchisees will operate 544 Sizzler and KFC (formerly known as Kentucky Fried Chicken) restaurants, down from 680. The company runs 44 Sizzler and 92 KFC restaurants in Australia and Asia, which will be unaffected by the move.

Customers at the remaining Sizzlers will see no deterioration in operations during Sizzler’s time in Bankruptcy Court, Perkins said.

The dramatic restructuring culminated years of failed efforts by the chain to find a formula to appeal to diners. Through much of the 1990s, Sizzler tried to adapt to the health-consciousness of the times, investing heavily in fancy salad bars with vegetables, prepared salads, pastas and soup. But competitors such as Souplantation and Fresh Choice came up with bigger and better salad bars in larger, more airy settings, and fast-food restaurants drew away cost-conscious customers as Sizzler raised prices.

Sizzler’s plight is not unusual in the restaurant industry, which was sliced and diced by the recession and has only recently begun to recover. Several Southern California restaurant chains found themselves in Bankruptcy Court in the 1990s, including Hamburger Hamlet, Del Taco, Rusty Pelican and Restaurant Enterprises Group, which operated the El Torito, Carrows and Coco’s chains.

Sizzler faced its own particular woes, such as a food-poisoning outbreak in Washington and Oregon in 1993, and California’s severe and lingering economic troubles. The company closed more than 60 restaurants in fiscal 1994, which led to a $94.9-million loss, and Perkins was brought in from the profitable Australian operation to lead a new turnaround effort.

In October, the company suspended its stock dividend, saving $4.5 million a year, and in December laid off 31% of its administrative staff. Computer and real estate operations were turned over to outside companies to save money and improve efficiency.

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But Perkins decided the company still needed the protection of Chapter 11 bankruptcy, under which a company can continue operating but remain out of reach of creditors. Sizzler enters bankruptcy protection with an unusually strong financial position--about $272 million in assets and about $98 million in liabilities, said Financial Officer Christopher Thomas. The company expects to emerge from Chapter 11 in six to eight months.

“Chapter 11 bankruptcy doesn’t have the stigma it once did. It’s seen as a legitimate business tool,” Perkins said. By special arrangement, Sizzler filed its Chapter 11 petition in U.S. Bankruptcy Court in Los Angeles on Sunday night.

Because of the restructuring, Sizzler will take a nearly $109-million charge against earnings, which will result in a loss for the fiscal year ended April 30. But the moves immediately return Sizzler to profitability on an operating basis, Perkins said.

In fiscal 1995, Sizzler earned $6.7 million on revenue of $462.2 million. Systemwide sales, which includes all sales of franchisees, totaled $937.7 million.

Sizzler is now placing its hopes on the new Sizzler American Grill concept, which company officials say has tested well in Sacramento, Phoenix and San Diego. It features a green, red and white color scheme--replacing Sizzler’s current “Miami” pastels--and customers will be greeted with a menu and escorted to a table.

That old Sizzler favorite Malibu Chicken is still on the menu, but new regional items have been added with names like Smoked St. Louis Ribs and Santa Fe Shrimp & Scallops. The new meat-chicken-seafood menu will include the salad bar as part of the entree.

All U.S. Sizzler restaurants, including those owned by franchisees, will eventually convert to the American Grill format, Perkins said. Sizzler will work with franchisees, who face an investment of $125,000 to $150,000 per restaurant to make the changeover.

The 130 restaurants to be closed will shut their doors today and employees, most of whom are part-timers, will be informed, Perkins said. Employees will be given severance packages and help finding new jobs, he said.

“We’ve got to think about the 9,948 jobs we’re saving” at the remaining restaurants and the booming international division, which will operate as usual, Perkins said.

Sizzler shares rose 25 cents to $3.75 Thursday on heavier than usual volume on the New York Stock Exchange. On Friday the stock inched up 12.5 cents to $3.875, the highest price since March. In 1992, the stock traded for more than $18 a share.