Seeking to end losses blamed in part on increased competition and changing consumer tastes, Hamburger Hamlet Restaurants Inc. on Friday closed 12 of its 31 restaurants and announced it will file for Chapter 11 bankruptcy protection.
The Sherman Oaks-based restaurant chain also said it has reached an agreement with its bank to provide interim financing until the filing.
The closures, which resulted in the loss of about 600 jobs, came as a shock to many employees and customers.
"I think the timing of this is unbelievable," said Joanne Bigbee, a waitress and bartender who lost her job at the Hamburger Hamlet in Northridge. "They lay off an entire restaurant just weeks before Christmas when the restaurant was actually doing business."
In Southern California, restaurants in Irvine, Long Beach, Simi Valley, Northridge and Downtown Los Angeles were closed. Also closed were three in Chicago, three in metropolitan Washington and one in Cupertino, Calif. Nineteen locations will remain open.
Established in 1950, when the first Hamburger Hamlet opened on Sunset Boulevard, the casual dining chain had enjoyed great popularity until a few years ago. In recent years, analysts say, it struggled through the recession--which decimated its middle-class customer base--and failed to update its menus and improve service. Meanwhile, it faced increased competition from newer, more contemporary chains such as the Cheesecake Factory and California Pizza Kitchen.
Also, while its core locations performed well, including some in Los Angeles and Washington, a number of its restaurants have consistently shown poor performance over the years.
Earlier this month, the chain reported a $1.7-million loss for the third quarter ended Sept. 24, up from a loss of $873,000 for the same period last year.
The company said it expects to file a voluntary Chapter 11 petition within two weeks. The filing will allow it to terminate leases on poor-performing restaurants and to reconsider agreements with equipment lessors. The plan is subject to approval by creditors and Bankruptcy Court.
At its remaining restaurants, the company said, it will continue efforts to rejuvenate operations--such as improving management, giving restaurants a more contemporary look and introducing new menu items. For instance, the flagship Sherman Oaks restaurant will be the testing ground for new Hamlet products--including gourmet pizza and iced cappuccino.
President and Chief Executive Shawn Holder said Friday that he expects the latest steps to lead the company to "a profitable 1996."
"We think it's a pretty simple plan that allows the company to focus on its current successful restaurants and continue to improve them, and allows the company to return to profitability," Holder said. "Hamburger Hamlet is well positioned to be as or more successful than at any time in its past."
"While these are difficult business decisions, this is a day of great optimism here, because I think we are well on our way to being a real profitable company again," Holder said.
Employees and customers in Southern California expressed surprise and sadness when they approached the closed Hamburger Hamlet restaurants Friday.
In Northridge, weary holiday shoppers from the mall across the street found a sign: "We're sorry to inform you that this Hamburger Hamlet is closed. We appreciate your business in the past and look forward to serving you for many years to come."
Former waitress and bartender Bigbee said she first learned the business was closed when she reported to work and saw the sign.
Outside the restaurant, Bigbee set her jaw firmly while comforting a crying co-worker--one of about 50 cooks, servers and dishwashers employed at the restaurant.
She and waiter Kevin McKeever stayed at the restaurant all afternoon to get phone numbers from co-workers who had become friends over the past few months.
"I'm devastated," McKeever said. "I have no job."
At the bustling Hamburger Hamlet at Van Nuys Boulevard and Moorpark Avenue in Sherman Oaks, the lunch crowd Friday did not reflect the company's strapped financial condition.
Standing under exposed-beam ceilings, waiter Tan Vuong said the restaurant will actually get a boost in business from the closures.
"This will make the company stronger," he said.
Meanwhile, Steve Johnson, who proudly described himself as a Hamlet "regular," sipped iced tea and waited for his favorite burger, the bacon Dijon. He said he visits one of the restaurants two or three times a month. He and his wife, Vicki, have frequented the chain for the past 10 years, he said.
"It's really sad to see some close," Johnson said. "A Hamburger Hamlet is sort of like a landmark. It's something you look for."
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Shares of Hamburger Hamlet Restaurants have been hovering around 50 cents. The stock fell sharply earlier this month after the company reported lower sales and profit. Daily closes on Nasdaq:
Nov. 24: 51.5 cents
Source: Bloomberg Business News