Noble Roman’s Inc.

views updated

Noble Romans Inc.

1 Virginia Avenue
Indianapolis, Indiana 46204
U.S.A.
(317) 634-3377
Fax: (317) 634-1234

Public Company
Incorporated: 1972
Employees: 1,300
Sales: $30.5 million
Stock Exchanges: NASDAQ
SICs: 5812 Eating Places; 6794 Patent Owners & Lessors

Operating a chain of casual dining restaurants in the Midwest, Noble Romans Inc. is known primarily for its pizza and offers a broad selection of toppings and crust styles to be enjoyed at the restaurants as well as through carry-out and home delivery services. In 1995 the Noble Romans chain included 80 restaurants located in Indiana, Ohio, Missouri, and Kentucky. While most of the restaurants were located in stand-alone buildings and were owned by the company, 14 were franchised in 1995.

Noble Romans was started in Bloomington, Indiana, by Stephen Huse and Gary Knackstedt. Huse had graduated from the business school at Indiana University in Bloomington before taking a sales job in 1965 with Ransburg Corp. Eager to be on his own, Huse purchased an Arbys restaurant franchise in Bloomington and ran the operation for a few years. In 1969 he spearheaded the purchase of a struggling Bloomington pizza restaurant. During the early 1970s Huse and partner Knackstedt worked together to turn the restaurant around and then to expand in the Bloomington area with new Noble Romans pizza outlets.

Huse and Knackstedt benefitted during the early and mid-1970s from overall growth in the fast food, and particularly pizza, business. As the population of the college town swelled with increasing numbers of students, sales of Noble Romans unique pizzas surged. To help them take advantage of growth opportunities, Huse and Knackstedt were joined by investor Paul Mo-bley in the early 1970s. Mobley helped to fund Noble Romans expansion throughout the 1970s. He also became increasingly involved in the companys management. In 1977, in fact, Mobley became president of the company. By that time, Knackstedt had left the venture to pursue other interests. Huse, on the other hand, would remain chairman and chief stockholder in the company until 1986.

Noble Romans continued to grow during the late 1970s and early 1980s, expanding outside of Bloomingtons borders in central Indiana and later throughout Indiana and into Ohio. Throughout this period, the burgeoning restaurant chain rang up consistent, healthy profits. To garner more money for expansion, Mobley and Huse took the company public in 1982. They used proceeds from that stock offering to build new outlets and to branch out into other ventures. In addition, Noble Romans management expanded the chain through franchising. Within a few years of the public offering the Noble Romans chain had grown to include about 120 stores in Indiana and Ohio, 25 of which were company-owned stores.

After posting hefty profit gains for more than a decade, Noble Romans fortunes began to turn in 1985. The company netted income of $146,000 in 1984, after which profitability began deteriorating rapidly. Part of the problem stemmed from the chains decision to intensify its expansion efforts in Ohio through the buyout of several ailing Godfathers Pizza outlets. Godfathers called Noble Romans executives in 1984 to see if they would be interested in buying their 21-store Dayton, Ohio, operations. Noble Romans already had nine units in the area and was planning to open another five within the year. Executives initially rejected the offer, but finally agreed to purchase seven of the stores, which they planned to convert to Noble Romans.

The deal was closed in March 1985, but problems immediately ensued. The management at Noble Romans clashed with managers at the Godfathers stores. All seven of the store managers quit within a few months, and Mobley and fellow executives had trouble finding worthy replacements. To make matters worse, the deal had left Noble Romans financially strapped and unable to invest funds necessary to revitalize the lagging Godfathers outlets. Rather than sell off the new stores, Mobley decided to hire the best managers he could find at whatever price he would have to pay. Even that effort proved to be inadequate because the stores had already developed a bad reputation locally; little could be done to make amends.

Noble Romans finally shuttered six of the seven stores, as well as three existing Noble Romans in Dayton and another failing store in Decatur, Indiana. As a result of the failed Godfathers deal and other setbacks within the company, Noble Romans net income plunged in 1985 to a deficit of $1.5 million. The company lost another $700,000 in the first quarter of 1986 and suffered another big deficit the next quarter when it wrote off losses related to the ten stores it closed in 1985. Noble Romans eventually recorded a crushing $3.7 million loss for 1986. Management was left scrambling for a solution to the crisis.

While Mobley and fellow executives worked to repair the ailing company, Noble Romans founder, Steve Huse, distanced himself from the company. In fact, Huses influence on day-to-day operations had been declining since he and Mobley took the company public in December 1982. When the company negotiated the Godfathers deal, Huse increasingly began to turn his attention to other interests. He continued to own half of American Diversified Foods, Inc., which owned 11 Arbys Roast Beef franchises in Indiana and was connected to the first Arbys franchise he had started in 1967. Huse also dabbled in real estate and had owned a group of billiards/electronic game halls for a time (the halls were sold to Bally Manufacturing Corp. in 1983).

In 1985, the time when Noble Romans first began to encounter serious problems, Huse opened a new restaurant in Blooming-ton called Mustards. The venture, which represented a culmination of restaurant ideas that Huse had picked up during various travels, was ultimately a success. Shortly after opening that restaurant Huse purchased the well-known and respected St. Elmo Steak House in Indianapolis. Moreover, although Huse remained the largest single shareholder of Noble Romans stock, he had been reducing his stake in the company since 1977. Finally, in 1986, Huse resigned from his position as chairman of the board. He later started the Huse Food Group, a holding company with various restaurant and real estate interests, and served for a few years as president and chief executive officer of the Indianapolis-based Consolidated Products, Inc., which owned the venerable Steak η Shake chain of eateries.

Although Noble Romans same-store sales improved during 1986, the company continued to struggle toward profitability. In an effort to buoy the companys sagging balance sheet, a group of company insiders led by Mobley purchased 12 stores from the company in 1987 for about $4.1 million. That left Noble Romans with a chain of about 120 outlets, roughly 40 of which were owned by the company or by its executives. In addition, Mobley moved the companys headquarters from Bloomington to Indianapolis as part of an overall cost-cutting effort. He also reduced the headquarters staff from 30 to 23, closed some restaurants, and initiated several other measures that reduced the companys expenses by about $1.1 million annually. Mobley was joined in the effort by his 25-year-old son Scott, who joined the company in 1986.

During the late 1980s Noble Romans went through a major reorganization. Managers became more responsible for their own budgets and improving efficiency in their operational area, and several stores changed ownership as part of an effort to boost cash flow and recover some of the $4.1 million that management invested in 1987. Importantly, Mobley made a decision to shift Noble Romans focus away from the cut-throat, low-cost delivery segment and toward the upscale end of the pizza market. To that end, the restaurant introduced and began to emphasize its premium, high-profit products and to intensify its quality and service efforts. The menu was expanded to include pastas and other pizza-related products, and a late-night menu was introduced as well. Importantly, Noble Romans also initiated a costly renovation program during the late 1980s designed to update the stores and give them a more upscale, progressive image.

As a result of the efforts of Mobley and his managers, Noble Romans finances gradually recovered. The companys net loss of $500,000 in 1988 was reduced to a deficit of just $16,531 in 1990. Finally, in 1991 Noble Romans returned to profitability with earnings of more than $200,000 on revenue of about $8.5 million. Throughout the period of recovery, however, some analysts remained skeptical of the companys strategy, citing several concerns. Even as late as 1989, for example, Noble Romans was scrambling for cash to meet its burdensome liabilities, and observers noted that a variety of influences, such as a potential increase in the minimum wage, threatened to quash the companys gains. By the early 1990s, though, many skeptics were beginning to place more faith in Noble Romans course of action. I think theyll get this done, said stock analyst Ray Diggle in the Indianapolis Business Journal in January 1993. Clearly, sales are doing exceptionally well. The company has done a good job of curtailing inventory costs. I think the company is poised for a period of solid growth.

After peaking at about 120 stores in the mid-1980s, the total number of Noble Romans stores was reduced to about 75 by 1992. The reorganization and store reduction had allowed Noble Romans to get back on track financially. In 1992, despite recessionary economic conditions, Noble Romans increased its earnings to about $491,000 from sales of $9.1 million. In January 1993 the company bought back 27 of its restaurants from three companies that were franchising the outlets in Indiana. That left it with a total of 42 company-owned stores and 31 franchises. The purchase helped the chain to boost its sales to $24.2 million while profits grew to about $841,000. A drawback of the move was that it saddled Noble Romans with a fat debt burdenlong-term debt rocketed from $2.5 million to a lofty $8 million after the purchase. At the same time, Noble Romans was still trying to pay off tax liabilities that had been accruing since the organization began experiencing problems in the mid-1980s.

Noble Romans heavy debt and thin cash flow was reflected by its stock price, which had hovered around a low $3 during much of the early 1990s. That situation began to change in 1994, though, when Noble Romans performance continued to improve and Mobley began paring the companys liabilities. In 1994 Noble Romans added a total of five new restaurants to its chain and announced plans to tag an additional 30 stores onto its portfolio by 1996.

The company also benefitted from general industry trends. Indeed, although the pizza industry was growing, the big, low-cost delivery chains were not. Instead, smaller operators catering to the high-end segment were posting solid market share gains. Evidencing the validity of Noble Romans upscale strategy, the chain reported record net income in 1994 of $1.5 million from revenues of $30.5 million.

Besides opening new stores in 1994 and 1995, Noble Romans continued to buy outlets that were being operated as franchises. By mid-1995 Noble Romans was operating 66 company-owned stores and 14 franchises, a state of affairs that gave it ownership and control of more than 80 percent of the outlets in its chain. That increased ownership, combined with savvy management, allowed Noble Romans to boost its sales and profits 63 percent and 87 percent, respectively, between 1991 and 1994. That achievement earned Noble Romans a spot on Business Weeks 1995 list of small, hot-growth companies in 1995. (To be eligible for the list, a company had to have revenues between $10 million and $150 million and a market value of less than $1 million.) Going into the latter part of the 1990s, Noble Romans was planning to expand its midwestern chain to more than 120 outlets, increase per-store profits, and reduce its debt.

Further Reading

Burton, Brian, Improving the Recipe: A New Look at Noble Romans, Inc., Indiana Business, September 1986, p. 28.

Harton, Tom, Following the Leader: Steak n Shake Parent Company Hires Two More Huse Group Execs, Indianapolis Business Journal, May 14, 1990, p. 9A.

Jeffrey, Don, Huse Quits Noble Romans; Founder LeavesTo Pursue Other Interests, Nations Restaurant News, September 15, 1986, p. 2.

Kukolla, Steve, Nobel Romans Scores on Business Week List, Indianapolis Business Journal, May 22, 1995, p. lOA.

Noble Romans Inc. Profits Rise 78 Percent, Nations Restaurant News, February 20, 1995, p. 16.

Noble Romans Would Reclaim 40 Franchises Through Stock Sale, Indianapolis Business Journal, July 6, 1992, p. 3.

Parent, Tom, Noble Romans Digging Out of Deep Dish, Indianapolis Business Journal, January 25, 1993, p. 1.

Rush, Jill, Noble Romans Still Losing Dough, But May Turn Corner This Week, Indianapolis Business Journal, July 3, 1989, p. 9A.

Dave Mote

More From encyclopedia.com