Revived Karcher Enterprises to Emphasize State Expansion
Slimmed down after more than a year of corporate belt-tightening but nourished by the success of its upgraded Carl’s Jr. restaurants, Carl Karcher Enterprises is on the comeback trail.
The Anaheim-based fast-food chain announced Sunday that it has purchased 13 Los Angeles-area Wendy’s restaurants from American Restaurants Corp., a Wendy’s franchisee, for $3.4 million in cash.
The stores will give Karcher a big boost toward its goal of opening at least 35 additional restaurants this year, chief financial officer Loren Pannier said Monday.
Over the next three to four years, even more expansion is in store for Karcher Enterprises, which owns or franchises 449 Carl’s Jr. restaurants in four states. The chain hopes to add 45 to 50 units each year, with many of those in Northern California and Arizona. “There will be an emphasis on building out our market presence in California,” Pannier said.
The announcement that Karcher is gobbling up the 13 Wendy’s stores came less than a week after the company said it is licensing a Japanese company to open at least 30 Carl’s Jr. restaurants in the Osaka region of Japan within five years.
Both moves clearly signal that “the company has learned its lesson related to expanding beyond its means to manage,” said Steven A. Rockwell, an analyst with Alex Brown & Sons in Baltimore.
“Their results last year were among the best in the restaurant industry,” Rockwell said. “They’ve solidly turned the corner.”
Rockwell was referring to a two-year losing streak that stretched into the spring of last year.
From 1985 through early 1987, Karcher Enterprises closed 20 company-owned restaurants in four states and launched an austerity program that included a series of layoffs. The company also abandoned a plan to become the coffee shop of fast-food restaurants by tossing out its struggling dinner-platter program and bumping an unsuccessful third-of-a-pound burger from the menu.
By late 1986, the chain had gone “back to basics” by emphasizing burgers, Cokes and lower prices. Karcher spruced up its older units, began a new ad campaign and introduced new menu items, such as its successful chicken club sandwich and an all-you-can-drink beverage bar.
Karcher Enterprises reported net earnings of $11.8 million for the nine months ended Nov. 2. Those earnings were nearly three times the $4.2 million reported for the same period a year earlier.
And now, Pannier said, “we have a good presence. But we’d like to have a larger one.”
The purchase of the Wendy’s stores “will accelerate that objective . . . and gives us an opportunity to grow in urban areas.”
The 13 sites are in the San Fernando and San Gabriel valleys.
The sale, which includes all leases, buildings, improvements, furniture, fixtures and equipment, is set to close May 2. The conversion to Carl’s outlets is expected to take from 60 to 120 days, the company said.
Pannier said he does not believe that Karcher Enterprises is expanding too fast. Most of the restaurants closed by the chain were in the economically depressed state of Texas, he said. “There was an industry softening,” he said. “We expanded in a state with problems . . . and we had some marketing problems of our own”--notably the big burger and ill-fated dinner entrees such as rainbow trout.
The chain’s previous problems “weren’t because of the speed of our openings,” Pannier said. “Now, every time we add another restaurant in our core market, the core becomes stronger.”
Furthermore, there is less risk with the Wendy’s stores “because they’re already restaurant locations that can be converted to Carl’s Jr.s,” Pannier said.
Industry analysts agreed that the purchase appears to be a positive step.
“They have a good franchise for the California market. I don’t think there’ll be any problem” with the planned expansion, said Paul Salazar, an analyst in Los Angeles with Crowell, Weedon & Co.
