Naugles Quarterly Loss of $26.6 Million Posted : Possible Savior for 15-Year-Old Firm May Be Collins Foods, a Major Stockholder Since
Naugles Inc., the Fullerton-based fast-food chain, nearly doubled its already heavy accumulation of quarterly losses this week when it reported a $26.6-million loss for the third quarter of its fiscal 1986.
The report confirmed Naugles’ earlier estimates that the period, which ended April 3, would be the worst in the chain’s nearly 15-year history. The loss brought total losses for the past 30 months to just over $45 million.
Wayne Withers, Naugles’ chairman and chief executive, could not be reached for comment Wednesday, but he earlier had said that the company’s cash reserves have been depleted and that Naugles did not intend to make a $2.1-million interest payment on $30 million in debentures due April 30.
A possible savior for Naugles is Los Angeles-based Collins Foods International Inc., which has purchased 50.1% of the company since last November. In April, Naugles announced that Richard Bermingham, Collins’ president, had been named to serve as president of Naugles as well, replacing Michael Mooslin, who had resigned in March.
Neither Bermingham nor any other Collins official could be reached Thursday for comment on the company’s plans for Naugles.
But Dennis Forst, an analyst with Seidler Amdec Securities Inc. in Los Angeles, said Thursday that he believes “it would be in their best interests” for Collins to try to do something to rescue the Mexican-American fast-food chain.
“There is no question but that Collins would like to consolidate (with Naugles) and get the advantage of (Naugles’) tax loss carry-forward,” Forst said. “But they have to own 80% to consolidate for tax purposes, and then they would run the risk of liability for all that debt.”
Forst said that Naugles’ fate hinges on its ability to work out a settlement with its debenture holders.
If that can be done without a voluntary or involuntary bankruptcy action, he said, there could be a future for the company.
“I think they have made a clean sweep” with a decision to close 70 stores and write off $22 million in losses. Although Naugles has had smaller store closures in the past, this time, he said, “I think they were influenced by Collins and Collins made sure” that all the visible problem spots were taken care of.
“There’s still going to be red ink” in Naugles’ fourth quarter, Forst said, “but it’s going to be better” than the third quarter.
As part of its effort to trim costs, Naugles last month announced plans to close 70 restaurants and said that it has now shut down 34 of them, including all of the Naugles outlets in Florida, Chicago and the Kansas City area. The other 36 units--in the company’s remaining markets in California, Utah, Nevada and the St. Louis, Mo., area--are scheduled for closure in the next few weeks. The cutbacks will leave Naugles at its leanest in nearly three years, with about 155 outlets operating in four states.
A month ago, the chain had 225 units.
The unaudited financial report released by Naugles shows the company with a $26.6-million loss for the period ended April 3, contrasted with a loss of $1.99 million a year earlier. Revenues for the period were $26 million, down 4.7% from $27.3 million.
For the first nine months of its fiscal 1986, Naugles’ losses hit $30.8 million, contrasted with $1.7 million for the initial three quarters of fiscal 1985. The nine-month loss is equal to a loss of $6.96 per share of outstanding common stock. Sales for the period totaled $95.8 million, up 2.7% from $93.25 million.
The losses failed to cause a ripple in the investment community, which has had the three weeks since Naugles first announced its estimated losses to adjust. On April 17, when the estimates were released, the company’s common stock closed in over-the-counter trading at $3.50 per share, down 12 1/2 cents for the day. On Thursday, however, Naugles’ stock closed at $3.125 per share, unchanged from Wednesday’s closing.
The bulk of the third quarter loss, the company said, came from a $22-million reserve set aside to cover actual and anticipated losses stemming from the closure of the 70 unprofitable units. Operating losses for the quarter totaled $4.6 million, the company said.
Naugles’ financial woes began about two years ago when an ambitious national expansion drive directed by the company’s founder and then-chairman Harold Butler began souring.
Several analysts have said that Naugles’ high prices hurt it and that a sizable number of the company’s out-of-state units were in poor locations. And while the company’s major food line was Mexican-American, it never clearly identified itself by name or logo, leaving consumers confused as to what they could get at a Naugles shop.
Industry analysts also have said that Naugles’ attempt to grow solely by word-of-mouth was a major impediment to profitability, particularly outside of its home base in Southern California.
Naugles did not even plan a major advertising campaign until Butler left the company and sold his shares to Collins--a major Kentucky Fried Chicken franchisee. Growing losses in the past few months have apparently scotched those advertising plans, however.
Additionally, Naugles has been hit hard by the fierce competition among restaurant operations of all stripes for the public’s dining-out dollars. Consumer expenditures for eating out have not declined nationally, industry specialists say, but the growing number of restaurants--sit-down take-out, full service and fast-food alike--has increased the number of tills to be filled.
