Karcher Reports Record Profits for Fiscal 1989

Citing the success of new menu items, a major remodeling program and its “back-to-basics” campaign, Carl Karcher Enterprises Inc. on Tuesday reported record profits of $20.8 million in fiscal 1989, a 30% jump over the $16 million posted in the prior year.

The Anaheim-based fast-food chain also reported record sales of $445.9 million for the fiscal year ended Jan. 30, a 20.6% climb from the $369.5 million reported in fiscal 1988.

Donald K. Karcher, president and chief operating officer, called the year-end results “solid evidence that the company is very favorably positioned for long-term, profitable growth. For the first time in our history, average restaurant sales exceeded $1 million.”

Karcher Enterprises owns or franchises 482 Carl’s Jr. restaurants in California, Arizona, Nevada and southern Oregon.

For the fiscal 1989 fourth quarter, the company recorded profits of $4.2 million, compared to net income of $2.4 million, plus a one-time tax benefit of $1.8 million for a total of $4.2 million, in the fourth quarter of fiscal 1988.

Revenue for the 13 weeks ended Jan. 30 was $111.3 million, up 25% from $88.7 million recorded during the comparable period a year ago.

The year-end results--better than several analysts had projected--were seen on Wall Street as evidence that Karcher Enterprises has returned to solid ground. The hamburger chain struggled through the mid-1980s when it expanded too rapidly and the introduction of entrees such as steak backfired.

But by mid-1986, Karcher Enterprises had launched its “back-to-basics” strategy--a promotion that emphasized lower prices and what the chain knew best--hamburgers and fries. Within 14 months, the company had turned the corner--after trimming its payroll, putting off plans to become a national chain and introducing what turned out to be a highly successful chicken club sandwich.

Over the past 2 years, the company has taken its turnaround a step further, embarking on an ambitious remodeling program at its restaurants that is now 80% complete.

The latest results are a clear signal that Karcher Enterprises “has turned around,” said Steven A. Rockwell, an analyst with Alex Brown & Sons in Baltimore.

Rockwell noted that the chain’s restaurants are bringing in more, with operating margins climbing during the 1989 fourth quarter to 16.3% from 14.6% during the comparable period last year. “Operating profits have been increasing for the last several years,” Rockwell added. “Basically, sales per restaurant are higher.”

In part, that success is due to the company’s introduction during the past 12 months of its pre-packaged salads and a guacamole-bacon cheeseburger. Both have sold well, according to Loren Pannier, Karcher’s chief financial officer.

“It’s really a continuation of things we’ve talked about for a couple of years,” Pannier added. “The synergy of successful new products, our remodeling program and continuation of the back-to-basics” strategy.

Over the past 6 months--as McDonald’s and Burger King have been fighting the burger wars--Carl’s Jr. has stayed out of the spat with its own recipe for success--advertising its chicken sandwiches.

“That has allowed (Karcher) to put its advertising dollars where it makes sense, instead of slugging it out over hamburgers,” said Tom Caraisco, director of research with Henry F. Swift in San Francisco. “Part of (the chain’s) success is its ability to be innovative and react to trends in the marketplace . . . and chicken is one example,” Caraisco said.

Karcher also has announced plans to open up to 70 restaurants during the next year, mainly in California, but also including Phoenix and Tucson, Ariz., “as well as further outlying markets,” Pannier said.