Sbarro CFO: Company needs to improve sales, watch costs to maintain covenant compliance

By Jennifer Lanning Drey

Portland, Ore., Aug. 19 - Sbarro, Inc. will have to improve its sales trends relative to the second quarter, as well as control costs, in order to remain in compliance with its bank covenants in the third quarter, Carolyn Spatafora, Sbarro's chief financial officer, said Thursday during the company's second-quarter earnings conference call.

Sbarro reported last-12-months bank credit agreement EBITDA of $41.7 million at June 27, compared with a covenant minimum of $40 million.

"Our clear focus at this point is to drive transactions and sales while at the same time continuing to tightly manage our costs and liquidity," Nicholas McGrane, the company's interim chief executive officer, said during the call.

If necessary, Sbarro intends to work with its banks to obtain a waiver or an amendment to the credit agreement, Spatafora said during the question-and-answer portion of the call.

"We really have to wait and see how the third quarter lays out," she said.

Sbarro reported second-quarter revenues of $76.1 million, versus revenues of $80.1 million in the comparable portion of 2009.

EBITDA as calculated under its bank credit agreements was $6.3 million for the second quarter, compared with $8.2 million for the same period in 2009.

The decrease was primarily the result of a decline in company-owned comparable-unit sales and an increase in cheese costs during the period. Those factors were partially offset by cost-savings initiatives, McGrane said.

Sbarro believes its cash flows from operations during 2010 plus cash on hand will be sufficient for the company to meet its debt-service requirements, as well as cover planned working capital and capital expenditures, for the next 12 months, assuming it remains in compliance with its debt covenants, Spatafora said.

The belief is based on Sbarro's quarter-end cash balance of $12.1 million, borrowing capacity and revised 2010 forecast, she said.

Sbarro is a Melville, N.Y.-based quick-service Italian restaurant chain.

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