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SCOTT BARANCIKAs the Tampa chain tries out a new menu, auditors express doubt it will make a difference in time to stay open.
TAMPA - Executives at long-troubled Shells Seafood Restaurants Inc. are working feverishly to turn things around.
But time may not be on their side.
In a report to federal regulators last week, Shells' independent auditors expressed "substantial doubt" about its ability to survive its current financial crisis. Kirkland Russ Murphy & Tapp of Clearwater said the 27-store Tampa chain is losing money, has a growing deficit and may not be able to pay off or refinance loans that are coming due in January.
Same-store sales fell 5.1 percent in 2003. On Jan. 31, Shells closed its restaurant at 7005 4th St. N in St. Petersburg, the first such closure in more than a year.
Spokesman Rick Van Warner said the company's relatively new management team is working aggressively to win back customers. A revised menu introduced this month features less fried food and more grilled choices, fresh rather than frozen grouper sandwiches, bigger and higher quality shrimp, and new flavors such as Cajun seafood pasta.
Getting customers back in the door to try the new menu may be tough, however. Shells can't afford to significantly remodel its restaurants' facades or conduct an extensive advertising campaign.
"If somebody drives by and it looks the same, how are you going to let them know things are different inside?" Van Warner said. "When the company is in a turnaround situation and the cash is tight, it really creates a Catch-22."
Bryan Elliott, a restaurant analysts at Raymond James & Associates, said staying fresh is a key challenge for older restaurant concepts like Shells, which debuted in Tampa in 1985. As consumers dine out more, the number of casual dining options they can select from has exploded.
"The critical success factor for someone who has been around a while is to maintain a freshness to its proposition to the consumer," Elliott said. "You usually don't have a second chance."
Shells needn't look far for the model of a successful seafood restaurant. A mile south of its former location on 4th St. N sits Bonefish Grill, a 3-year-old Outback Steakhouse concept whose clientele can usually expect to wait a while for a free table.
Dan Masi, front-of-the-house manager at Bonefish, said he doubted the restaurant took much business away from the nearby Shells. He said Bonefish appears to draw a more upscale clientele.
Concerns about Shells' viability have been raised before. Deloitte & Touche LLP did so in early 1995, a year before an initial public offering injected Shells with new capital. The latest auditor's warning was placed on the public record last week, when the company filed its 2003 annual report.
But the company's recent problems didn't appear suddenly. Same-store sales at Shells fell 7.2 percent in 2002 and 13.1 percent in 2001, even steeper declines than it suffered in 2003.
Shells lost $1-million last year, or 23 cents per share, on revenues of $44-million. The company ended the year with a cash balance of $724,000, down from $2.47-million a year prior.
On Jan. 31, Shells is scheduled to pay off two 15 percent, $1-million notes, one of them issued by its own chairman, Philip Chapman. The total payment due will be $2.42-million. Spokesman Van Warner said the company expects both noteholders to renegotiate the debt if necessary.
Van Warner also expressed optimism about Shells' future under Chief Executive Leslie Christon, who joined the company in mid-2003.
"One of the pieces of good news is that things are being addressed in terms of the menu, the service, and just kind of updating the concept," he said. "Some of those things, I believe, are long overdue."
Shells' stock closed unchanged Tuesday at 60 cents per share.
- Scott Barancik can be reached at barancik@sptimes.com or 727 893-8751.