3401 West End Avenue
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J. Alexander's Corporation is a Nashville, Tennessee-based chain of 27 full-service, casual dining restaurants (as of December 28, 2003), located in a dozen states but mostly in Ohio, Tennessee, and Florida. The chain offers contemporary American cuisine, with an emphasis on high-quality products made from scratch. The menu features hardwood-grilled steaks, prime rib of beef, seafood and chicken, and pasta, as well as a variety of sandwiches, soups and salads, appetizers, and desserts. J. Alexander's also places a great deal of emphasis on architectural design and interiors. Exteriors are found in a variety of styles, some reminiscent of the work of Frank Lloyd Wright and others of a simple warehouse. Inside, the chain goes for an upscale feel and centers around an open kitchen. J. Alexander's is a public company, trading on the American Stock Exchange.
Founding the Company in 1971
J. Alexander's was founded in 1971 as Volunteer Capital Corporation by legendary entrepreneur Jack C. Massey, the principal shareholder, and two Nashville businessmen named Earl Beasley, Jr., and John Neff. Massey's story was one of a self-made man. He was only four years old when his father, a Georgia country lawyer, passed away, leaving his mother to scrape together a living and raise three children. Massey became a delivery boy for his uncle's pharmacy in Tennille, Georgia, and because he liked the business, at the age of 17 he left home to become a pharmacist. He was only 25 when he bought a Nashville drugstore. Not only did he manage to keep the business running during the Depression, he was able to add four more drugstores. He sold his five-store chain in 1935 to become a wholesale distributor of surgical supplies to doctors and hospitals. He prospered when the economy rebounded with the advent of World War II and the boom that followed the war. In 1961, when he was just 56, Massey sold his medical supply company and retired a rich man. But after only six months in Florida, he was restless and returned to Nashville in search of a company to buy. By chance he became involved in the restaurant business.
A friend introduced Massey to Colonel Harlan Sanders, the founder of the Kentucky Fried Chicken (KFC Corporation) fast-food chain, then in his 70s. Sanders was impressed with Massey and offered him a $100,000 salary and half the profits if he would run the company for him. Massey declined but offered to find a buyer. According to company lore, the Colonel insisted that he wanted Massey to buy KFC, a decision he then confirmed by conferring with a horoscope. In 1964 Massey and an associate, John Y. Brown, who would one day be elected Kentucky's governor, paid $2 million for the chicken chain, which at the time was generating just $37 million in annual revenues. In seven short years Massey and Brown took KFC public, listing its shares on the New York Stock Exchange, expanded the number of franchised and company-owned restaurants from some 600 to more than 3,500 worldwide, and built KFC's sales to $700 million. In 1971 the business was sold to Heublein Inc., with Massey pocketing $45 million in the deal.
Focusing on Volunteer Capital Corporation in 1978
While he was leading KFC to new heights, Massey returned to his roots by helping to establish Hospital Corp. of America, a for-profit hospital chain. He devoted much of the 1970s growing the company, which he also would list on the New York Stock Exchange. He cut his ties to Hospital Corp. in 1978, but he did not have to worry about retirement and the boredom that accompanied it. He had another company, Volunteer Capital, to occupy his time.
Volunteer Capital was originally a Tennessee-based mutual fund that was not faring well. Earl Beasley, a junior associate, suggested that Massey acquire the fund, sell off the portfolio, and turn it into an operating company. Massey agreed and along with Beasley and John Neff started Volunteer Capital to enter the equipment leasing business, an area he knew from his days of leasing surgical equipment as well as chicken pressure cookers while with KFC. Beasley ran the company until Massey joined after his involvement with Hospital Corp. came to an end. When the leasing business became too competitive, as larger financial companies entered the field, Volunteer Capital switched gears and moved into Massey's other area of expertise, fast food. The company bought several Wendy's Old Fashioned Hamburgers franchises, but Massey soon steered the company toward the chicken sector. Massey believed there was an opening for a "family dining" chicken chain, an alternative to fast-food concepts like KFC and Church's Fried Chicken. In 1979 Volunteer Capital bought the Granny's of Atlanta chain of 21 restaurants, renamed it Mrs. Winner's Chicken & Biscuit, and relocated the headquarters to Nashville. Massey then took Volunteer Capital public two years later, thus becoming the first person ever to chair three companies listed on the New York Stock Exchange.
By the end of 1982 the Mrs. Winner's chain had grown to 64 units. Also in 1982, Volunteer Capital changed its name to Winners Corp. The chain grew to 96 stores in 1983 and reached a total of 184 (two-thirds of which were company owned) in 1984. Massey and his team hoped to build a 1,000-store chain, but the market for the concept proved less than expected and in the mid-1980s Winners was in trouble and losing money. In 1985 the company lost $3.6 million on $112 million in revenue. Following a difficult first quarter in 1986, President and CEO M.V. Hussung, Jr., resigned. He was replaced by 39-year-old Lonnie J. Stout II, who was quite familiar with the operation. Just two years earlier he had resigned as Winners' chief financial officer, a post he held from 1981 to 1984, to head Dinelite Corp., a D'Lites Franchisee. Soon, the chicken chain appeared to have stabilized and was producing a same-store increase in sales, due in large part to the introduction of new products. It was the 60 Wendy's franchises that management considered the major problem for the company. Nevertheless, in 1987 management tried to tinker with the Mrs. Winner's format. It converted six units to a cafeteria-style restaurant dubbed Mrs. Winner's Southern Café.
Winners found itself the object of an unwelcome suitor in 1988 when F.J. Spillman, the former head of the Pizza Inn chain, announced his desire to buy the Mrs. Winner's chain. Stout indicated that the business was not for sale, but in May 1989, after four years of losses that totaled $26.1 million, the company decided to sell Mrs. Winner's to RTM Inc., Arby's largest franchisee, for approximately $30 million in cash. Winners, which reverted back to the Volunteer Capital name, would now concentrate on its Wendy's operations as well as the development of a new casual dinner-house concept, in the belief that the fast-food market was saturated and the dinner-house market offered strong growth opportunities for the next decade.
Massey died in February 1990 at the age of 85, replaced as chairman by Stout, and would not see the birth of the company's upscale dinner-house concept, J. Alexander's. The first unit was launched in Nashville in May 1991 on a street, White Bridge Road, known to local restaurateurs as Death Row, because so many restaurants on it had failed. Volunteer Capital Corp. acquired a restaurant named Rafferty's and considered adopting that name for its new concept, but in the end elected to use J. Alexander as its brand name. Unlike the Raffertys, Bennigan's, Red Lobster, and On the Border restaurants that had floundered on Nashville's Death Row, J. Alexander's flourished from the start, and management took steps to introduce the format on a national basis.
In 1992 two more restaurants opened, in Franklin, Tennessee, and Dayton, Ohio. To fund further expansion, Volunteer Capital made a secondary offering of stock in 1993, grossing close to $10 million. The company resumed opening new units in 1994, moving into Columbus, Ohio, and Oak Brook, Illinois. Volunteer Capital opened four restaurants in 1995, in Ft. Lauderdale, Florida; Birmingham, Alabama; Toledo, Ohio; and Overland Park, Kansas. Five units followed in 1996, in Plantation, Florida; Memphis, Tennessee; Cleveland, Ohio; Chattanooga, Tennessee; and Troy, Michigan. Clearly, the J. Alexander's chain was the future of the company, and so in November 1996 Volunteer Capital sold 52 of its 58 Wendy's restaurants to Wendy's International. In six months the remaining six units would either be closed or sold. In keeping with the company's commitment to its dinner-house format, Volunteer Capital changed its name to J. Alexander's Corporation in February 1997.
Four new restaurants opened in 1997, in Denver, Colorado; Tampa, Florida; San Antonio, Texas; and Livonia, Michigan. Management forecasted modest results for the year, but were caught off guard by the effects of rapid expansion, which--because of the divestiture of the Wendy's chain, and unsatisfactory sales performance in some of the new restaurants--could no longer be offset by another division. For the year, J. Alexander's recorded sales of $57.1 million, a significant decrease over the previous year's $90.9 million. After posting a profit of $7.2 million in 1996, the company now suffered a loss of nearly $6 million. According to a statement by Stout, J. Alexander's results "fell short of our business plan by a wide margin." As a result, the company cut back on its expansion plans to focus on improving sales in the existing 18 restaurants. In addition, management decided to focus on markets possessing a higher income population exceeding 200,000 people living within a five-mile radius. The chain added just two units in 1998--in Louisville, Kentucky, and Baton Rouge, Louisiana--and just one unit in 1999, located in West Bloomfield, Michigan.
Spurning O'Charley's 1999 Takeover Bid
J. Alexander's rebounded somewhat in 1998 and 1999, as management expressed satisfaction with the chain's growing sales momentum. In 1998 revenues grew to $74.2 million (for 53 weeks due to a change in the company's fiscal year), and the net loss fell to $1.5 million. Sales for a 52-week year in 1999 improved slightly, to $78.5 million, and the net loss narrowed further to $332,000. J. Alexander's also was dogged for several months in 1999 by an attempt by O'Charley's Inc. to buy the chain in a $30 million cash and stock deal. But management rejected the bid, expressing a commitment to pursue its strategic business plan, which now focused on measured rollout of new units in markets where the company already operated, in particular, Chicago, Detroit, and Miami.
The New York Stock Exchange implemented new listing requirements, mandating a minimum $50 million market capitalization and $50 million in total stockholders' equity. Because J. Alexander's could not meet these criteria, management met with representatives of both the NASDAQ and the American Stock Exchange. The company decided to apply for a listing on the American Stock Exchange and was approved. After 16 years of trading on the Big Board, J. Alexander's moved to the American Stock Exchange starting January 2, 2001.
J. Alexander's opened one restaurant in 2000, located in Cincinnati, Ohio, and two more in 2001, located in Atlanta, Georgia, and Boca Raton, Florida. In 2000 the company recorded its first profitable year since selling off its Wendy's division. For the year, sales totaled $87.5 million, resulting in a profit of $481,000. Despite difficult economic conditions that prevailed in 2001, J. Alexander's managed to remain profitable. Revenues reached $91.2 million and net income fell slightly, to $271,000. The company added no new restaurants in 2002, during which sales approached $100 million and net income grew to more than $2.8 million (aided by a significant deferred tax benefit). The chain grew to 27 units in 2003 with the opening of three new restaurants. For the year J. Alexander's saw its revenues reach $107 million and net income grow to $3.8 million, which was again padded somewhat by a deferred tax benefit.
Management decided not to add any new restaurants in 2004, electing rather to concentrate on the growth of its existing units. The chain appeared to have turned the corner, and although expansion would likely take place incrementally, J. Alexander's was now well positioned for steady, long-term growth.
Principal Subsidiaries: J. Alexander's Restaurants, Inc.; J. Alexander's Restaurants of Kansas, Inc.; J. Alexander's of Texas, Inc.; JAX Real Estate, LLC.
Principal Competitors: O'Charley's Inc.; Outback Steakhouse, Inc.; P.F. Chang's China Bistro, Inc.