The multi-concept company was in advanced talks with a potential buyer.
J. Alexander’s was in advanced negotiations with a buyer before COVID-19 rattled the landscape in early March. The multi-concept operator had investigated a deal since August 2019, when it retained investment banking firm Piper Sandler to assist in an evaluation of strategic alternatives, with a focus on a sale of the entire company (there are 46 total restaurants in 16 states across J. Alexander’s, Redlands Grill, and Stoney River Steakhouse and Grill).
J. Alexander’s said Tuesday its board believed its small size made it inefficient to be a standalone publicly traded company. Piper Sandler ultimately contacted more than 125 potential interested parties. Three emerged.
And one, the company said, progressed through talks to buy J. Alexander’s at “a premium to the then-current market price”
However, the pandemic collapsed the figure. It led the buyer to reduce its proposed purchase price twice, J. Alexander’s said, and insist on conditions relating to the performance of the company.
“Ultimately, when government entities mandated the closure of the company’s restaurants, except for limited carry-out, the Board determined that no transaction at a price that reflected the long-term value of the company would be able to be consummated until the resolution of uncertainties about the COVID-19 pandemic and the return of the company’s business to satisfactory levels,” the company said.
For now, a potential sale has been shelved. J. Alexander’s will instead focus on rebuilding sales as restaurants reopen and increase capacity. The company predicted “sometime in 2021,” before J. Alexander’s could conclude its evaluation of strategic alternatives.
Tuesday’s financial update was the company’s first since March 24, when it announced the furlough of 3,400 workers.
Here’s a look at average weekly same-store sales for fiscal 2020 compared to monthly periods in 2019:
J. Alexander’s/Grill Restaurants
- January: 3 percent
- February: 1.3 percent
- March (five weeks): –37 percent
- April: –81 percent
- May: –61.5 percent
Stoney River Steakhouse and Grill
- January: 0.5 percent
- February: –3.1 percent
- March: –37.2 percent
- April: –78.3 percent
- May: –62 percent
Average weekly same-store sales per restaurant in Q1 fell 12.8 percent to $102,300 for J. Alexander’s/Grill units and 14.6 percent to $72,200 for Stoney River Steakhouse and Grill venues.
J. Alexander’s shifted to a carryout platform at the onset of COVID-19. The company estimated at the time average weekly sales would range between 10–20 percent of historic volumes.
During the period from mid-March 2020 through the end of April 2020—before the reopening of dining rooms on a limited basis in certain markets—J. Alexander’s experienced sales volumes about 18 percent of year-ago numbers. Sales grew steadily on a weekly basis during that timeframe, too.
J. Alexander’s started reopening dining rooms in the week beginning April 27 in Tennessee, Georgia, Florida, Texas, Ohio, and other markets. Naturally, the move provided a jolt. By the week ending May 31, sales totaled roughly 61 percent of volumes recorded during the same period in 2019.
As of June 9, the company reopened dining rooms on a limited capacity basis at all of its restaurants. It’s continued to offer carryout service as well.
Off-premises sales have risen throughout the crisis, and are holding steady. In the week ending May 31, off-premises totaled about 29 percent of total take, up 35 percent over the week ending March 29—the first full period of primarily carryout-only business.
J. Alexander’s credited the bump to increased digital marketing and email campaigns, the addition of curbside service, and an online ordering investment with ChowNow. J. Alexander’s also introduced family style meals and butcher shop sales of cook-at-home, hand-cut steaks.
Additionally, the brand is offering bottles of wine to-go in most markets and testing delivery in a number of others—a change of tune from pre-pandemic direction. J. Alexander’s, like many fine-dining concepts, was resistant to takeout and delivery ahead of COVID-19.
CEO Mark A. Parkey said J. Alexander’s had to work through some unique supply challenges early on. “Unlike a lot of restaurant concepts, we buy all of our beef fresh and pay a premium to have it aged for us,” he said in a statement. “When the pandemic hit, we had a surplus of fresh beef at various stages in our supply chain that we needed to work through. Thus, after almost 30 years of resisting carry-out dining in favor of maximizing the in-person dining experience, we found ourselves pivoting to an off-premise only operating platform at 46 restaurant locations.”
“In an effort to market our premium fresh beef and, at the same time, provide value to our loyal guests, we not only featured some attractively priced beef-centered entrees, but we also offered ‘family packs’ utilizing our beef products and sold ‘butcher-shop’ cuts of cook-at-home steaks and whole loins,” he added. “While the margins we realized from these beef offerings were lower, we were able to cover our input costs and work through the pipeline of beef in our distribution system and, in the process, make a lot of our guests happy since many of the grocery stores were depleted of beef and other proteins.”
Reopenings have infused optimism already, Parkey added. One location recorded sales of $186,000 during Mother’s Day week with only 50 percent of the seats open to the public and no pub seating available.
Off-premises gains have run alongside this. Parkey pointed to another unit, which generated $35,000 of takeout revenue on Mother’s Day, “which is a phenomenal amount for a concept that wasn’t offering such an option three months ago,” he said. “As such, we are actively exploring various platforms which will allow us to continue to meet this demand without sacrificing the guest experience in our dining rooms that has been foundational to our success for the past 29 years.”
More to the beef topic, Parkey said J. Alexander’s continues to encounter limited supply and higher-than-normal input costs. “Unfortunately, there are operational hurdles at all levels of the supply chain and our focus is on procuring beef loins from all available sources to the extent they meet our specifications and, at least for the next several weeks, doing our best to ensure an ample inventory of other protein offerings is available for our guests.”
In Q1, the company swung a net loss of $17.6 million versus year-ago gains of $3.8 million. Net sales were $56,972,000, down from $64,734,000.
J. Alexander’s said it will not reopen one of its locations that closed in March, in Lyndhurst Ohio, due to the pandemic. It’s entered into an agreement to sell the location for an amount equivalent to the fair value of the property, a deal that’s expected to close in Q3.
As of March 29, J. Alexander’s cash and cash equivalents totaled $24,818,000. Total outstanding indebtedness equaled $25,722,000, including $21,000,000 outstanding on its lines of credit facilities.
By June, the company had cash on hand of roughly $14.6 million. In April, J. Alexander’s was burning through $1.9 million per week. The rate reduced to $480,000 in May.
It’s forecasting weekly cash burn of about $550,000 to $580,000 in June through the end of Q3. This includes capital expenditure commitments, including the construction of one new location expected to open in Q4—a Redlands Grill in San Antonio.