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Struggling Sbarro files for Chapt. 11 bankruptcy

Sbarro, the Melville-based pizza chain, filed Monday for

Sbarro, the Melville-based pizza chain, filed Monday for bankruptcy protection for the second time in less than three years. This store was on Seventh Avenue at 33rd Street in Manhattan on Feb. 1, 2011. Credit: Charles Eckert

Sbarro LLC, the Melville-based pizza chain once ubiquitous in mall food courts, filed Monday for bankruptcy protection for the second time in less than three years as it grapples with debts and a struggling business model.

In a news release, Sbarro said it is aiming for a quick exit from Chapter 11 as it embarks on a broad plan to reduce debt. The plan includes the previously announced closure of 155 company-owned stores. A spokesman for Sbarro said the company hopes to reorganize in "a matter of months, but the decision is the court's."

Sbarro's corporate operation, which employs 64 employees in Melville, will not be disrupted, the spokesman said. Its 600 franchisees, out of 800 stores worldwide, will be similarly unaffected.

In court filings with the Southern District of New York in Manhattan, Sbarro listed $100 million to $500 million in assets and the same range for its liabilities. A group of lenders will provide $20 million in financing, and the reorganization will eliminate $140 million of debt, the company said. Those lenders will receive majority ownership of the reorganized business.

Sbarro had filed for reorganization in April 2011, and emerged from bankruptcy later that year. It then attempted a comeback by expanding in foreign countries, testing a "fast-casual" format and using new recipes for its sauces and dough.

Its second bankruptcy filing comes amid a time of flat growth for the restaurant industry overall, said Bonnie Riggs, a restaurant analyst for the NPD Group, a Port Washington-based market research firm.

Traffic in quick-service pizza restaurants has declined every year since 2011, and competition among the major chains to advertise and offer discounts is intense. "For someone like Sbarro to compete with that marketing clout is very difficult," Riggs said.

Sbarro CEO J. David Karam, formerly at Wendy's, joined a year ago after James Greco resigned following a 14-month stint at the company.

Standard & Poor's, in a note lowering Sbarro's credit rating after the bankruptcy filing Monday, said it believed competition in mall food courts, declining mall traffic and increased commodity costs will continue to affect the company.

Last month, Sbarro announced it would close 155 U.S. locations, including three on Long Island -- at Sunrise Mall in Massapequa, Green Acres Mall in Valley Stream, and Broadway Mall in Hicksville. No more major closures are expected, a spokesman said.

Sbarro went public in 1985 and was taken private in 1999.

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