Shoney’s Staggers Under a Debt Load

Shoney’s Inc., the operator of nearly a thousand restaurants, said in June that it had hired Bank of America to help it review its options. The Nashville, Tenn.-based company posted a loss of $9.1 million for the first quarter of 2001 on revenues of $226.5 million, and one analyst’s take is that the company is casting about for solutions to its weighty overhang of debt. “The founder sucked the cash out of the company when he was bought out and it really hasn’t recovered,” says Paul Heer, an analyst at Nashville brokerage Heidtke & Co. The company was also forced to pay a $135 million settlement in a racial discrimination suit in 1992. Heer says that the company has only a limited set of options and that a sale might be a difficult route to justify. “The company has been raising prices at its Shoney’s restaurants to generate additional income, but it’s hard to believe that the price increase is going to stick, or not be counterproductive in the long run,” he says. Shoney’s Inc. is made up of about 458 Shoney’s restaurants and 565 Captain D’s seafood restaurants. Captain D’s has done well in recent years and it may be a growth vehicle that would attract potential buyers. Part of the reason for Captain D’s successful growth record is its operational plan that reduces the number of waiters. “One of the main problems in the restaurant business is the lack of help,” Heer notes. By requiring customers to place their orders at a counter and carry their own food to the tables, Captain D’s can run with fewer staff members. Captain D’s operations may also be enhanced by a plan to shift more ownership of the stores to franchisees. Currently, one-third of its restaurants are franchised, and it may increase that percentage to two-thirds. But whether improvements at Captain D’s can revive the fortunes of the entire company remains to be seen. In the end, Heer says that the only way out for the company may be a sale of its properties to a buyer that is interested in them as real estate – much like the strategy that McDonald’s Corp. pursued in buying a number of Boston Market Corp. franchises after that chain suffered a downturn in its business.