Crumbs Bake Shop Closing Its Doors Cupcake Chain Throws in the Towel, a Week After Nasdaq Suspension, Which Triggered Default By Sara Randazzo Updated July 7, 2014 8:16 p.m. ET Crumbs Bake Shop Inc. notified employees Monday that it would be closing all of its stores at the end of the business day, a spokeswoman for the New York-based cupcake maker said. Regrettably Crumbs has been forced to cease operations and is immediately attending to the dislocation of its devoted employees while it evaluates its limited remaining options, the company said in a statement to The Wall Street Journal. Those options could include a bankruptcy filing, the spokeswoman said. Kareem Wegman, a manager in a Crumbs store in Brooklyn, told the Journal that a fellow employee broke the news of the closure to him. I come into work today, Im happy, Im skipping to work, and suddenly I dont have a job, said Mr. Wegman, who has worked at the store for two years and said he has a family to support. Crumbs went public three years ago at the height of the gourmet-cupcake boom. Since then, its financial outlook has grown bleak amid several years of losses, a dwindling cash supply, and a food craze that is petering out. It currently has 48 stores in 10 states and the District of Columbia, according to its website. In March, Crumbs said it closed nine underperforming stores during the last three months of 2013, shut six at the start of 2014 and had more closures on the way. The Nasdaq Stock Market suspended trading of Crumbs shares July 1, citing the companys failure to meet a requirement of either having at least $2.5 million in shareholder equity or meeting benchmarks for its market cap or annual net profit. Crumbs made its mark selling 4-inch, frosting-laden cupcakes in flavors such as cookie dough, caramel macchiato and red velvet cheesecake, costing generally $3.50 to $4.50 each. A single cupcake can top 600 calories. But the popularity of high-end cupcakes—embodied by chains such as New Yorks Magnolia Bakery and Los Angeles-based Sprinkles—has waned in recent years, even as new players crowded into the field. Crumbs posted a loss of $18.2 million last year, layered on a loss of $10.3 million in 2012, according to securities filings. Its cash on hand fell to $893,000 at the end of 2013, down from $6.3 million the prior year. In one bright spot, the company reported an increase in net sales last year, to $47.2 million from $43 million in 2012. Edward Slezak was named Crumbs chief executive late last year, and set about trying to stem the losses. Since his promotion, Mr. Slezak—a former Aéropostale executive who joined the company in August 2013 as its chief legal officer—has overseen the creation of a licensing program to sell Crumbs-branded products in other stores, the closure of unprofitable locations, and other initiatives to turn the company around. The companys stock, which once traded at $13 per share, had fallen below 30 cents a share last month when Crumbs announced that Nasdaq planned to delist the company from the exchange. Crumbs said in a regulatory filing Thursday that the trading suspension would trigger an event of default on July 6 of $9.3 million in senior secured convertible tranche notes and $5.1 million in unsecured notes. Crumbs got its start in 2003 with a shop on the Upper West Side of Manhattan, founded by a husband-and-wife team, Jason and Mia Bauer. A shell company bought Crumbs in 2011 and took it public that June. Last year, following the popularity of the cronut, a croissant-doughnut hybrid invented by a Manhattan bakery, Crumbs released its own hybrid called the crumbnut. Jumping onto the gluten-free bandwagon, the company opened a Manhattan store last fall selling exclusively gluten-free confections. In January, the company said it would continue to diversify through an investment by Fischer Enterprises, which bought another once-hot dessert chain, Dippin Dots, out of bankruptcy in 2012. Scott Fischer of Fischer Enterprises declined to comment Monday. The Brooklyn store manager, Mr. Wegman, said employees were told they would not be paid past Monday. I just paid rent. I wouldnt have paid rent if I knew I was being fired, he said, adding that he may have to live with his mother until he finds a new source of income.
Posted on: Tue, 08 Jul 2014 12:58:08 +0000