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Talk From The TopChanticleer Holdings’ CEO Mike Pruitt

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Chanticleer looks to grow globally with Hooters, American Roadside

For Charlotte-based Hooters franchisee Chanticleer Holdings, the past 12 months have delivered some setbacks. But a new opportunity has its CEO optimistic.

In the past year, the company found itself dealing with problems with financial reporting in its South African operations. It also has faced persistent losses that CEO Mike Pruitt attributes to the costs of being publicly traded and startup expenses in the countries where it has opened Hooters restaurants.

Pruitt said he expects the company, formed in 2005, to become profitable once it opens more Hooters. And he believes its newest venture – acquiring Charlotte-based American Roadside Burgers – will give the company another brand to introduce to other countries and grow revenue.

Last September, Nasdaq halted trading of the company’s stock after Chanticleer disclosed that financial statements for its South African Hooters operations had not been audited for fiscal 2011. Chanticleer launched an investigation, after which it said it found its former South African chief financial officer had fabricated financial statements and misappropriated company funds, according to Chanticleer’s filings with the Securities and Exchange Commission.

The money has been repaid and the incident reported to South African and U.S. authorities, Pruitt told the Observer.

But Chanticleer had to issue revised financial statements, and Nasdaq trading of its stock didn’t resume until January. That month, Chanticleer said it was enhancing its internal controls over financial reporting.

Chanticleer does not own any Hooters in the U.S., but it has a minority stake in Hooters of America, the Atlanta-based operator and franchiser of about 430 Hooters in 28 countries. The chain is known for its provocatively dressed female servers and fare such as wings and beer.

The six Hooters in which Chanticleer has ownership and operates are in South Africa, Australia and Hungary. It also has expansion plans for Brazil and this month signed a letter of intent to acquire a Hooters in Nottingham, England.

Expenses associated with the Hooters in which Chanticleer has ownership have contributed to losses for the company. In the second quarter, Chanticleer lost $706,944.

In the first quarter, it lost $737,843. Pruitt said Chanticleer will need to roughly double its Hooters locations to overcome the costs of being public and reach profitability.

The company’s stock has risen 30 percent since trading resumed in January, closing Friday at $4.75.

In August, Chanticleer announced an agreement to acquire American Roadside Burgers, a deal expected to close Sept. 30. The chain has two outlets in Charlotte – one on Church Street uptown, one in SouthPark – and one each in Columbia, Greenville, S.C., and Smithville, N.Y.

In an interview last week with the Observer, Pruitt discussed the company’s past year and his hopes for its future. His comments have been edited for brevity and clarity.

Q: Chanticleer’s focus has long been on Hooters. How does American Roadside Burgers fit in?

Our primary path will always be the growth of Hooters. A second path always that we contemplated was to look at other concepts in the U.S. that could be successful, that would not be in any way competitive to Hooters, but eventually utilizing those concepts in places around the world that we do business in.

When the Roadside opportunity was brought to me, the people I called were my partner in Australia, my partner in Budapest, my partner in South Africa, and said, “Do you think an upper-end burger concept would work in the parts of the world that you’re familiar with?” And with 100 percent, they came back “For sure.”

Q: What is it about Hooters that appeals to Chanticleer?

It’s an iconic brand that has been around for soon to be 30 years that continues to have growth opportunities not only here but obviously internationally. We made the decision to invest based on the financial performance of the company and its history. It’s turned out to be an amazing investment. We’ve proven ourselves right.

Q: Are the Hooters in other countries different from those in the U.S.?

We do slightly vary on the menu. We do have things like steak, ribs on the menu in South Africa, Brazil and Australia. Steak and ribs are not served on the menu here in the United States.

Q: What would you say to those who think Hooters contributes to the objectification of women?

In any business, I guess, you’ll always have critics. We’re close to $1 billion in revenue; we have plenty of fans that welcome Hooters and enjoy the experience of Hooters. We don’t get into that debate.

Q: What was your reaction when Nasdaq halted trading of your stock last year?

You wish it didn’t happen, but it did. You just deal with it and move on and be open and honest.

Q: As a result of the halt, an outside accounting firm will examine your systems in South Africa this month. What will that cost?

I would imagine it’s 10 grand.

Q: Some would say extra expenses are the last thing your company needs right now.

I do agree. But the market, from an investor’s standpoint, has not hurt us over that, because I think it’s made us better. Anytime you make an investment in any business, if it ultimately improves the business, people are willing to not punish you for it.

Q: Tell me about your quarterly losses.

In any early stages of a business, there’s an investment that’s required. And that investment, in the early stages, usually results in losses. But we certainly have a clear plan. Being an investor at heart, I can’t tell you many times in the last 15 years of investing when it didn’t cost more money than we thought and take longer than we thought to achieve the goals. But I’m a believer in our people. I’m a believer in the brand, most importantly. And I feel comfortable.

Q: So, at what point will you become profitable?

We need 10 to 12 (Hooters) locations open ... to overcome the costs of being public, which gets more and more expensive all the time. What we’ve proven at the store level is the stores are profitable. There’s a startup cost associated with entering a country. In South Africa, we’re just now overcoming the costs of the management team there.

Q: Where will your first Roadside location be outside of America?

My partner in Australia is all over me about wanting to do them over there.

Q: What’s the next big thing for Chanticleer?

Our lead banker … when I asked him, “What would you do if you were me?” his response was, “You’re building some pretty impressive people and teams in these international markets. You could position Chanticleer to be the first call made by successful U.S. brands who want to expand internationally.”

Q: And are you thinking about doing that?

I haven’t done anything to promote that, but I can tell you there’s a burger chain in this country, that’s iconic, that’s already approached me. I’ve had another significant company, a juice company, approach me. So I’m already being approached by concepts.

Roberts: 704-358-5248; Twitter: @DeonERoberts
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