Furr’s Restaurants Chapter 11 Bankruptcy Filing in Dallas, Texas
On February 4, 2014, Buffet Partners, L.P. (Furr’s Restaurants) filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Texas under lead case no. 14-30699-HDH-11. It is currently pending before the Honorable Harlin D. Hale.
Barry M. Barron, Sr. is the Chief Executive Officer of Buffet Partners G.P., Inc. the general partner of Buffet Partners, L.P., hired May, 2013. His background includes experience with companies including Host International, PepsiCo, Papa Johns International and Ace Cash Express. Mr. Barron, in court pleadings, discussed the bankruptcy filing:
Overview of Furr’s Restaurants
“Furr’s provides a compelling price-to-value relationship which results in high average sales per restaurant, relatively low labor costs and attractive unit economic returns. The Company enjoys a unique competitive advantage through its Dynamic Foods division (“Dynamic Foods” or “Dynamic”), a fully integrated food processing, manufacturing, warehousing and distribution operation centrally located in Lubbock, Texas, that services Furr’s restaurants and a host of external customers.“Headquartered in Plano, Texas, Buffet Partners, L.P., d/b/a Furr’s Fresh Buffet (“Furr’s,” the “Company” or the “Debtor(s)”), is a well-recognized, value oriented restaurant chain with 29 restaurants in Arizona, Arkansas, New Mexico, Oklahoma and Texas, generating in excess of $100 million in revenue. With a rich, 65+ year operating history and strong brand awareness, Furr’s operates straight-line and scatter-bar buffet units that feature a wide variety of “all-you-can-eat,” “home-cooked,” high quality foods served with personalized service at an affordable price ($9.00 average guest check).
“Furr’s is one of the longest-tenured and most recognized restaurant brands in the Southwest. The restaurant was founded in 1946 by Roy Furr, and expanded to approximately 60 locations as a family-owned business for over 35 years. In 1980, it was acquired by Kmart Corporation. Kmart ultimately sold Furr’s in a leveraged buy-out which subsequently went public in 1986. Following a take private transaction, the Company entered a period of decline due to its debt burden, culminating in a restructuring and reorganization under chapter 11 in 2003 in Dallas, Texas (In re Cafeteria Operators, L.P., Case No. 03-30179-HDH-11, Bankr. N.D. Tex).
“Recognizing the strength of the brand, attractive restaurant locations and vertically integrated food processing capabilities, Buffet Partners, L.P. was formed to purchase Furr’s in September of 2003. Under Buffet Partners’ ownership, management systematically shifted the business to the Furr’s Fresh Buffet (scatter-bar) concept while closing underperforming straight-line units. Furr’s hired me in May, 2013. I am a seasoned restaurant industry veteran, and I will oversee the next phase of the Company’s growth. Additionally, Furr’s has a highly experienced and committed management team with over 160 years of combined restaurant experience and an average of 14 years with Furr’s.
Operations and Financial Performance
“Today, the Company operates 29 restaurants, of which 12 are scatter-bar concepts and 17 are straight-line concepts, in five states throughout the Southwest. All restaurants are Company owned, and all are assets of Buffet Partners, L.P., including Dynamic Foods. Restaurants are supported by Dynamic Foods, a captive, vertically integrated food processing and distribution operation. Approximately 2080 persons are employed at the restaurants, 200 are employed by Dynamic Foods, and approximately 20 persons are employed at the corporate headquarters in Plano, Texas.
“Furr’s continues to strategically convert its restaurant portfolio to the Furr’s Fresh Buffet (scatter-bar) concept that generates over $4 million in average annual unit volume, and higher profit per store. Additionally, Dynamic’s sales have nearly doubled since 2009, and with capacity utilization only near 50%, Dynamic and the Company have substantial upside growth opportunities, to service both an increased number of Furr’s units as well as external customers.
“For the year ending December 2013, Furr’s total net sales for restaurant operations exceeded $100 million. Dynamic’s total net sales for the same period exceeded $59 million, with over $14 million from external customers. Furr’s serviced almost 11 million guests in 2013, with an unadjusted EBITDA for 2013 of $2.7 million. In 2012 the Company’s EBITDA approximated $5.8 million and guest count approximated 12.8 million. Reduction in sales, EBITDA and guest count are attributed in part to the closure of several stores.
Assets, Liabilities, & Capital Structure
“Furr’s assets consist primarily of the 29 operating restaurants, each leased from multiple different landlords, and the real estate, personal property, vehicles, and other assets at the Lubbock, Texas, Dynamic Foods facility, and the Plano corporate headquarters. Furr’s liabilities consist primarily of $39 million in senior, secured debts of Chatham Capital Partners (“Chatham”), and its affiliated funds, as well as approximately $4 million in trade payables to miscellaneous vendors, suppliers and other parties, and undetermined liabilities to landlords of closed store locations. All of Furr’s assets, to include its cash, are pledged to Chatham on a senior, secured basis. Upon belief, the value of the Company’s assets, whether valued in a liquidation or as a going concern, are materially below the aggregate amount of the Chatham debt.
Reasons for Filing Chapter 11
“Furr’s has weathered the macro-economic storm that began in 2008, but the credit constraints resulting from the financial crisis impacted the Company’s ability to finance growth and improvements in process, and subjected the Debtors to higher interest and leasing rates. Further, commodity and transportation prices increased, and the recessionary climate limited the Company’s ability to raise prices to cover increasing costs, and impacted guest counts. Certain locations began to suffer and the Company became increasingly undercapitalized. One of the most successful cash flow locations was lost in an eminent domain proceeding, and a major competitor began direct attacks on the Company. Specific locations subject to these factors began to lose money. The Company did not act to close stores quickly while assessing losses and duration of the recession, wanting to preserve jobs, investment and store locations. The economic climate and onerous lease terms however could not sustain continued operation of stores producing losses, and these stores were closed.
“Furr’s has begun implementation of a footprint rationalization strategy to streamline its restaurant portfolio and focus on its strongest locations, while maintaining strong revenue of $113 million for the year ending 2013. In implementing this strategy, net store closures of 16 units in the last three years resulted in a decrease in revenues of approximately $19.6 million. The decline was offset partially by new, high revenue Furr’s Fresh Buffet units and strong external sales at Dynamic. While gross margin remained flat at around 60%, EBITDA decreased approximately $3.0 million from $5.8 million to $2.7 million in 2013 due primarily to the effect of the store closures, a drop in guest count of almost 2 million, increased G&A expense, deferred maintenance, and continuing economic uncertainty.
“Overall liquidity was impacted by capital spending on new stores in support of expansion of the scatter-line buffet concept and needed maintenance that had been deferred on older stores. In December the Texas market suffered an ice storm and unusually cold weather, causing a significant loss in guest count and hundreds of thousands of dollars in lost profit. This was detrimental to already tenuous liquidity, and with no available line of credit, the Debtors were unable to continue to weather the financial storm, eventually leading to the chapter 11 filing.
“Under my leadership, new operating initiatives and cost saving programs are positively impacting sales and operating profits at the restaurants. The Company is developing and implementing strategies to buy more efficiently, and improve credit and terms with its vendor base. Dynamic Foods external sales continue to be strong and the business is actively pursuing several opportunities with new customers.
“On December 31, 2013, the Company decided to retain Bridgepoint Consulting, LLC (“Bridgepoint”) as financial advisor, to assist the Company with cash management, restructuring analysis and other similar financial advisory services. While Bridgepoint’s expertise in these areas greatly improved the Company’s cash management, the ongoing liabilities of the Company were deemed unsustainable with the current diminished cash flow and lack of vendor credit. Accordingly, on February 4, 2014, the Company commenced these proceedings to afford it an opportunity to restructure its affairs.
“I believe that the core, operating business is sustainable and will be successful over the long term, so long as it has the ability to restructure its balance sheet and de-lever the Company.
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