June 1, 1999

Out of Orbit
The Glory Days of Planet Hollywood

by Rick Aristotle Munarriz (TMFEdible@aol.com)

Robert Earl enters the conference room and makes his way towards the stage. As he passes the Planet Hollywood (NYSE: PHL) global logo on a sign announcing the 1999 annual meeting, it appears as if the weight of the world is on the shoulders of the beleaguered CEO. Shareholders look on, anxiously wondering if years of simmering in bewilderment will come to some kind of peaceful resolve.

"We're chasing a loser," an elderly man mutters.

"Why are we here then," his wife asks.

"We're chasing a loser!"

If this were a celluloid epic, the framed shot on Earl would close in and blur. Music would swell. His words would fade. A flashback sequence would take Earl back to merrier times -- like 1991. New York City. There, flanked by celebrities and his business partner, movie mogul Keith Barish, Earl paraded down a rolled out red carpet to a sea of media flashbulbs. The first Planet Hollywood was born.

This morning, Ballroom C at Orlando's Clarion Plaza Hotel comes complete with a different set designer. There are no blockbuster movie stars at Earl's side. Barish, whose movie producer background has apparently taught him to walk away from an overbudget turkey, left the company earlier this year. Even the red carpet is gone -- replaced by the Clarion's more subtle floral pastel carpeting.

If only the Screen Actors Guild could loan Earl a stand-in for the next hour or so. It's never easy to concede failure -- much less into a microphone when you're raised on a pedestal.

The Way We Were

Earl cracks open a can of Diet Coke before he begins to address the downtrodden shareowners. Like his company's share price, apparently Earl is looking to slim down some. He leans into the microphone.

"Ladies and gentlemen, good morning."

It's scripted. It's hollow.

Earl will eventually go on to evoke images of how the company can recapture its glory days of old.

"With our cachet we will be a survivor," he later reveals. High on cachet. Low on cash. If he had shiny red slippers he would click the heels together. He would go from being caught between a rock and a hard place to running the show at a Hard Rock Cafe place -- where he called the shots until leaving to pursue Planet Hollywood full-time earlier this decade.

At that time Planet Hollywood was only a dream. If he could parlay his experience with the music-themed eatery into an entity where Hollywood celebrities and movie memorabilia would replace rock stars and Gibson six-strings that would work, right? The only catch was that while Earl could spring for a map to the home of stars, unless they were ex-musicians, they would never let him inside.

That's where Barish came in. He had served as Producer or Executive Producer on box office smashes like Sophie's Choice and The Fugitive. Okay, so maybe he also bankrolled Joan Jett's Light of Day -- nobody's perfect. However, when it came time to draw celebrity firepower he came through big time. When the first Planet Hollywood opened its doors in 1991, Barish had lined up the hottest actors at the time. Arnold Schwarzenegger. Bruce Willis. Sylvester Stallone.

The celebrities were given rock bottom-priced stock options in exchange for their endorsement. It made sense at the time. The movie stars could be rightfully billed as owners. Every new opening became a paparazzi magnet. By 1995 the company had grown to 29 units, mostly company-owned locations with a half-dozen licensed properties abroad. 1995 also marked its first year as a profitable company and its last as a private one.

In April of 1996 Planet Hollywood went public. Expansion capital demands were outpacing the incoming mother lode and debt was piling on thick. The year before, Planet Hollywood had $80 million in captial expenditures with only $33 million in cash flow from operations. While the offering could have been just another ordinary cash-strapped financing deal, no, this was Planet Hollywood. The restaurant chain that put the sizzle before the steak would go public with a glitz and glamour marinade. Priced at $18, the newly issued shares shot up past $30 at the open.

Why the hoopla? Was it co-owner Demi Moore's sexy yet sophisticated photograph in the prospectus? Was Wall Street so shallow as to be starstruck? Perhaps. The truth was that Planet Hollywood's fundamentals looked pretty good at the time. With healthy profit margins of 20% at the operating level and sales more than doubling the year before, it was all too easy to extrapolate the past into an explosive future.

The chain's workhorse was made of cotton. Branded t-shirts with location specific insignia flew off the makeshift retail counters. At its peak in 1995, merchandise sales accounted for 38% of total revenues. Thanks to high volume transactions in the compact retail areas, the company was generating a staggering $3,200 in annual sales per square foot of selling space. That was ten times better than what successful full-time mall retailers were fetching.

With international franchisees coming on board providing perpetual royalty revenue streams and the company opening its own locations both stateside and abroad, the Planet was clearly in orbit.

But would the public tire of official ballcaps and chicken tenders battered in Cap'n Crunch Cereal? The now all but obvious answer was getting ready to crash the party.

On to Part 2: The Fall


Introduction    The Glory Days    The Fall
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