Please ensure Javascript is enabled for purposes of website accessibility

BANKRUPTCY WATCH: Chuck E. Cheese Latest to Declare as COVID-19 Takes its Toll

By Rich Duprey – Jun 25, 2020 at 1:19PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The kids food and entertainment chain had no backup plan for the forced closure of its restaurants.

Kids food and entertainment chain Chuck E. Cheese filed for Chapter 11 bankruptcy protection as it was unable to contend with its business being forced to close throughout the COVID-19 pandemic.

It plans to use the filing as an opportunity to reorganize its balance sheet in consultation with its lenders, and it intends to continue reopening its restaurants. About half of its locations have already reopened.

Kids playing on arcade rides

Image source: Chuck E. Cheese.

A struggle even before the pandemic

While many restaurants were able to survive the coronavirus outbreak because they were able to switch to a takeout or delivery model, that didn't apply to privately held Chuck E. Cheese, which is owned by Apollo Global Management (APO).

It's the experience of being in a Chuck E. Cheese restaurant with its game arcade and animatronic entertainment that has made the chain so successful.

The same applies to Dave & Buster's Entertainment (PLAY 6.00%), which wasn't performing all that well before the pandemic. Its stock has quadrupled from the depths it hit at the outset of the pandemic, but that's only because investors expected it to go under too. Shares still sit some 70% below where they were trading before the outbreak.

Chuck E. Cheese has struggled as well, and a planned return to the public markets last year was ultimately scrapped. 

While it is reopening restaurants and planning to operate normally, whether business will return right away is doubtful as parents may be leery of allowing their kids into the spaces to play and eat, even if social distancing rules are followed.

The chain handed out lucrative bonuses to top executives just weeks before the bankruptcy filing as purported retention payments to keep them onboard. CEO David McPhillips received a $1.3 million bonus.

 

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apollo Global Management, LLC Stock Quote
Apollo Global Management, LLC
APO
Dave & Buster's Entertainment, Inc. Stock Quote
Dave & Buster's Entertainment, Inc.
PLAY
$33.21 (6.00%) $1.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
331%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.