Karcher Reports Flat Net, Revenue : Sales Lost Due to Franchising Cited for Sluggish Results

Despite its much-ballyhooed “back-to-basics” strategy, Carl Karcher Enterprises Inc. said Thursday that sales and net earnings during the fiscal second quarter and six months ended Aug. 11 were essentially flat compared to a year ago.

The Anaheim-based operator of the Carl’s Jr. fast-food restaurant chain reported net earnings of $1.54 million during the quarter, up 3% from $1.49 million. However, investment income on Karcher’s $45 million in cash accounted for the bulk of the earnings: $1.4 million.

Revenue during the quarter fell 2% to $76.1 million from $77.5 million.

For the six months, net earnings rose 5% to $2.4 million from $2.3 million on the strength of investment income. In the latest six months, investment income totaled $6 million, up from $2.5 million in the year-earlier period.

Revenue for the period was $166.6 million, down 5% from $174.6 million a year earlier.

Loren Pannier, Karcher’s chief financial officer, said the drop resulted from sales that were lost to the company when outlets were franchised during the last year. Actual product sales during the quarter were up slightly to $81.7 million from $80.3 million, “so it’s a different mix,” he said.

Karcher racked up impressive growth until late 1984 when it began to falter in its attempt to fill the niche thought to exist between fast-food restaurants and coffee shops. Instead, fast-food customers generally were confounded by the steak and fish plates that Karcher served on ceramic dishes.

“If the public is confused about what you’re offering, they have a difficult time going to your store,” said Sarah Stack, an analyst with the investment firm of Bateman Eichler Hill Richards Inc.

Pannier admits that the year-old “back to basics” strategy--based on lower prices and greater emphasis on plain-old hamburgers and fries--is taking longer than expected to turn Karcher around, but company officials nevertheless are sticking by the strategy.

“It’s a very difficult market right now, but we are doing what we can to get Carl Karcher back to where it was,” he said. “We have the plan and we are convinced that it’s the right plan.”

Although Stack, of Bateman Eichler, agrees with Karcher’s assessment that the restaurant industry overall is in a slump, she argues that for the company, “it’s critical at this time that they develop a well-defined menu concept and convey that to the public.”