Naugles Reports Profit but Credits Chicken Outlets

Naugles Inc. on Wednesday reported its first quarterly operating profit in two years, but a company official admitted that most of the earnings came not from the tacos and burritos prepared by Senor Naugles, but from the Kentucky Colonel’s fried chicken.

Last month, the Orange-based fast-food chain obtained 111 Kentucky Fried Chicken outlets from Collins Foods International Inc., a Los Angeles-based firm which holds a majority stake in Naugles. The KFC restaurants, Thomas said, accounted for 83% of Naugles’ $1.8 million in operating earnings for its first fiscal quarter ended Oct. 23.

However, because of a $2.3-million write-down, incurred by the early retirement of $30 million in bond debt, Naugles reported a net loss of $547,000. That loss contrasts with net earnings of $40,000 a year earlier. The prior year’s figures have been restated to include the impact of the Kentucky Fried Chicken franchises.

Revenues fell 5% to $56 million from $59 million a year earlier. The drop was due to the closing of 45 Naugles restaurants during the year-to-year period, said Chris Thomas, vice president of finance. Naugles currently operates 171 outlets in four states.

Naugles, which has been struggling against a rising tide of red ink, reported a $31.4-million net loss for its fiscal 1986--more than three times its loss during the previous year. However, as previously reported, the company managed to reduce its fourth-quarter loss to $573,000 from $7.5 million a year earlier.

At that time, analysts predicted that the company was on the verge of turning the corner.

Thomas said Wednesday that the company’s recent television advertising campaign, coupled with new decor and menus, have resulted in “double-digit” sales increases on a same-store basis at its Naugles outlets.

Moreover, he said, the refinancing of Naugles $30 million in subordinated bond debt, which carried an interest rate of 13.75%, will result in annual savings of more than $2 million. The new bank debt which replaced the bond debt costs only 6.5%, he said.

Although Thomas declined to make any predictions concerning the current quarter or the rest of the year, he said Naugles officials are optimistic. “The trend is moving in the right direction,” he said.