Planet Hollywood International Inc., the movie-themed restaurant chain that has been bleeding financially despite backing from a star-studded roster of investors, announced Tuesday that it plans to file for bankruptcy reorganization in order to restructure its operations.
The Orlando, Fla.-based chain, whose shareholders include actors Bruce Willis, Arnold Schwarzenegger and Sylvester Stallone, said it has lined up a $30-million cash infusion from two of its largest shareholders. At the same time, company officials said they are negotiating with lenders the terms of a prepackaged Chapter 11 bankruptcy filing that they said would pare unprofitable restaurants.
Planet Hollywood, whose eateries feature movie memorabilia hanging from the walls and ceilings, owns 48 restaurants, including ones in Beverly Hills, Santa Ana, San Francisco and San Diego. Franchisees own an additional 32 restaurants, including ones in Hong Kong, Rome and Moscow. The company also owns eight sports-themed All Star Cafes, whose investors include superstar athletes such as Tiger Woods, Joe Montana, Andre Agassi and Wayne Gretzky, and a handful of other themed restaurants.
Co-founder and Chief Executive Robert Earl said in an interview Tuesday that Planet Hollywood will make the Chapter 11 filing sometime within the next two months and hopes to be out of bankruptcy by December. Among other things, the move will allow the company to get out of high-cost, long-term leases in money-losing locations.
Earl said that "the majority" of restaurants would be kept. He declined to say which eateries might close.
Planet Hollywood shares last traded at 75 cents Tuesday on the New York Stock Exchange, unchanged from Monday, before trading was suspended midday pending the announcement. The company went public at $18 a share in 1996 and traded as high as $28.50.
The company has been trying to refinance about $250 million worth of debt since April when it defaulted on $15 million in interest payments to bondholders amid lagging sales at its restaurants.
Planet Hollywood is the latest in a number of themed restaurants that are struggling to overcome a major hurdle: luring customers back for repeat visits. High prices and a perception of mediocre food are two other factors that have led to stalled sales at some locations.
"The level of restaurant competition today is so intense that the novelty factor has to be much greater than it was in the past," said Ronald Paul, president of Technomics, a Chicago food-industry consulting firm. "I think the life cycle of Hard Rock Cafe has been extraordinary, but I don't think anyone has come even close to demonstrating that kind of long life for a themed restaurant."
Minnesota-based Rainforest Cafe; Fashion Cafe and Motown Cafe, both of New York; and Anaheim-based Tinseltown studios--a dinner theater modeled after the Academy Awards--all have had well-publicized financial problems.
Earl said the new $30-million investment--which is tied to the approval of a restructuring plan--would come from two of Planet Hollywood's major shareholders, Saudi Arabian Prince Alwaleed Bin Talal and Singapore billionaire Ong Beng Seng, and a trust fund benefiting Earl's children.
In a statement, the company said it is hoping to negotiate the terms of a Chapter 11 plan with creditors before making the filing. Among other things, the plan would involve the continued operation of the company's most successful, high-profile Planet Hollywood restaurants--such as the ones at Disney World and in Beverly Hills--while "disposing of non-core businesses and unprofitable units."
Paul said the chain will have to dramatically reduce its number of restaurants to have a chance at long-term survival.
"I think if they survive it will be with 75% fewer locations," Paul said. "It will take a dramatic re-scaling, and even then I think it's doubtful because the parade has moved on. They opened too many too fast and got themselves in a jam because they spent their money. Just because it works in Las Vegas and Orlando doesn't mean it's going to work in Indianapolis."
Planet Hollywood has tried to improve its fortunes by revising its menus and merchandise, such as T-shirts, which account for 25% of its revenue. Last week, however, it reported a $28.3-million loss, up from a $1.24-million deficit a year earlier. Sales slid 27% to $76.6 million.
In bids to raise cash, the company recently sold its Orlando corporate headquarters for $17 million and its interest in the 1,700-room Hotel Pennsylvania, across the street from New York's Madison Square Garden, which was going to become the Official All Star hotel. The company also has been looking for buyers for the All Star Cafe chain.
Under the proposed restructuring, bondholders would exchange $250 million in debt for $47.5 million in cash, $60 million in new notes, plus new stock. Bondholders would own 26.5% of the reorganized company; current shareholders would own 70%.
Celebrity investors generate much of the publicity with their appearances at the chain's restaurant openings, but Schwarzenegger, Stallone and Willis actually own less than 20% of Planet Hollywood.
"I have spoken to them all today," Earl said of the three actors, adding that they expressed "continued support [along with] disappointment that it occurred."
He said the restaurants could prosper once the financial issues are settled and "we don't have this cloud hanging over us anymore."
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Planet Hollywood's sales have tumbled after peaking in mid-1997. Quarterly sales, in millions:
2nd-quarter 1999: $76.6 million
Source: Bloomberg News
Shares of Planet Hollywood and of Rainforest Cafe, both major "themed" restaurant chains, have plunged from their 1997 heights. Quarterly closes and latest:
Planet Hollywood Tuesday: $0.75
Rainforest Cafe Tuesday: $6.94
Note: Planet Hollywood trades on NYSE; Rainforest trades on Nasdaq.