Carl Karcher Reports Loss of $7.1 Million for Year, but President Sees Turnaround

Battered by a $15-million write-down in the final quarter, Carl Karcher Enterprises Inc. on Tuesday reported a net loss of $7.1 million for the fiscal year ended Jan. 16, contrasted with net earnings of $5 million a year earlier.

Revenue of $317 million for the year was down 3% from $327 million from the previous year.

Despite those declines, officials of the Anaheim-based fast-food chain, which owns and franchises 436 Carl’s Jr. restaurants in four states, say Karcher Enterprises actually is on its way to profitability--thanks largely to a companywide austerity campaign.

Without the one-time, $15-million reserve for costs incurred in the closing of 20 company-owned restaurants in Texas and Arizona, they said, Karcher Enterprises’ income actually climbed 26% last year to $6.3 million.

For the fourth quarter of its fiscal 1987, the company posted a net loss of $11.3 million, contrasted with net earnings of $1.1 million for the prior year’s final period. Revenues in the quarter fell 1% to $76.3 million from $77.5 million.

Without the reserve, fourth-quarter income would have been $2.1 million for the final quarter--the highest pretax income for 12 months, officials said.

“The impact of the reserve . . . does not overshadow our strong operating profitability in the fourth quarter,” said Donald Karcher, president and chief operating officer. “A significant turnaround is taking place.”

On Tuesday--for the first time in years--industry analysts enthusiastically agreed with Karcher’s sunny outlook.

“The numbers are basically in line with what we were looking for,” said Steven A. Rockwell, a research analyst with Alex Brown & Sons Inc.

That is largely because Karcher announced in January that it would set up the sizable reserve to provide for wind-down costs and eventual losses from the sale and closure of the Texas and Arizona restaurants.

The closures were the most recent--and most dramatic--in a series of aggressive belt-tightening measures.

Over the past 24 months, Karcher Enterprises slashed its building program, had several series of layoffs and scrapped ambitious plans to become a national chain, opting instead for West Coast growth.

The cost-cutting has paid off, with the company’s expenses dropping to $321 million for fiscal 1987 from $329 million in its fiscal 1986.

For the fourth quarter alone, savings totaled $3 million.

What really gave Karcher Enterprises something to crow about, however, was last fall’s introduction of a new menu item, a chicken club sandwich.

On Tuesday, Donald Karcher said the new product’s success accounts for much of the company’s real sales growth of 8% during the fourth quarter, contrasted with a 7.3% sales decline for the company’s fiscal year 1986.

The menu additions continue to be a key toward profitability. Even with fewer restaurants, Karcher’s revenues for the fiscal 1988 first quarter are up 15%, said Loren Pannier, chief financial officer. He said that not only are the chain’s restaurants seating 9% more customers, those customers are spending more, as well.

Pannier said the company’s performance should be judged by the bottom line, noting that systemwide restaurant sales--including the 77 franchisees--for fiscal 1987 were $343.6 million, compared to $335.7 million for the prior year, when the company had 20 more restaurants.

“The big news is that we anticipate a 50% improvement in income” this year, almost entirely from operating earnings, said Pannier, who predicted that the company will realize net income of $9 million to $10 million in its fiscal 1988.

To do that, Karcher by June will complete a $25-million interior and exterior remodeling program at its 220 Southern California Carl’s Jr. restaurants.

At the same time, the company is pinning its hopes on the much-ballyhooed “back-to-basics” program that emphasizes value for dollars. The new flagship Carl’s Jr. on North Harbor Boulevard in Anaheim, for example, features an “all-you-want,” beverage bar and a remodeled salad bar with health-type foods such as trail mix and serve-yourself soups.