Karcher Yearly Earnings Fall 57% : Growth Campaign, Killed a Year Ago, Still Taking Its Toll
More than one year after Carl Karcher Enterprises killed an ill-advised growth campaign that muddied its image and sent the company into a tailspin, the fast-food chain is still feeling the aftershocks.
On Wednesday, the company said that its net revenues tumbled nearly 57% for fiscal 1986, a record annual earnings drop since the company went public in 1981.
The Anaheim chain of 456 Carl’s Jr. restaurants reported net income of $5 million for the fiscal year ended Jan. 31, 1986, compared with $11.6 million during fiscal 1985.
For the fourth fiscal quarter, net income slid 15% to $1.2 million from $1.4 million a year earlier.
Despite these declines, the company is viewed by some analysts as one that could enjoy a substantial rebound this year. And the company appears to be gearing up for a recovery, with major remodeling planned, a new advertising agency on tap and a successful new entree recently added to its roster.
As a clear signal that the company’s so called “back-to-basics” campaign is working--a promotion that features lower prices on its hamburger products--revenues appear to be bouncing back. Although revenues fell 2.4% for the 1986 fiscal year compared to 1985, they rose more than 2% for the fourth quarter compared to the year-ago period.
For fiscal 1986, revenues were $327 million compared with $335 million the year before. But for the fourth quarter, revenues rose to $77.5 million, from $75.9 million during the same period last year.
“The most important thing is that sales are starting to turn the corner,” said Steve Rockwell, a securities analyst with the Baltimore-based investment firm of Alex Brown Partners. He said that sales should continue to increase throughout fiscal 1987, which could result in a substantial improvement in net income at Carl Karcher this year.
Helping to boost sales was the system-wide introduction in March of a stuffed baked potato entree that now accounts for nearly 7% of total revenues, according to Loren Pannier, group vice president of finance and administration. “If hamburgers appeal to men, the baked potatoes seem to appeal to women,” he said.
The company plans to spend nearly $6 million this year to remodel nearly 80 Carl’s Jr. units, Pannier said. The newly designed stores will feature a more modern design with brighter colors.
The company will also continue to invest heavily in advertising--something that Carl Karcher executives partially credit for the sales rebound at the fiscal year’s end. Last year, Carl Karcher dumped its longtime agency, Newport Beach-based Cochrane Chase, Livingston & Co., and switched to the more costly New York ad firm of Della Femina, Travisano & Partners.
Although times have been tough at Carl Karcher, the company has the cash on hand to pay for the improvements. “We do not have a capital problem,” Pannier said, pointing out that the company has a net cash position of $55 million.
