Firm Declares 2-for-1 Stock Split : Karcher Profits Drop Despite Revenue Increase

Executives with Carl Karcher Enterprises painted a rosy picture for shareholders at the annual meeting Thursday, despite reporting a first-quarter, 14.9% drop in net income to $5.7 million from $6.7 million a year earlier.

For one thing, the Anaheim-based fast-food chain said, operating earnings--income before taxes and excluding interest expenses and investment income--reached a record high of $11.5 million for the fiscal 1990 first quarter, which ended March 22.

Despite the decline in net earnings, revenue for the period totaled $148.9 million, up 21% from $123.5 million a year earlier, Karcher executives said.

“We’ve had 32 months of positive real growth, and the momentum keeps building,” Donald F. Karcher, president and chief operating officer, told shareholders.

Karcher Enterprises owns or franchises 498 Carl’s Jr. outlets in California, Arizona, Nevada and Southern Oregon.

Karcher and Loren Pannier, vice president of finance and administration, traced the first-quarter slide in net income to the company’s decision to repurchase and retire nearly 25% of its outstanding shares in August, 1988.

The company reduced its marketable securities portfolio and increased its bank borrowings to pay for this transaction--which, in turn, caused a drop in investment and other income but an increase in interest expense.

At the same time, Karcher Enterprises’ earnings per share increased because there were fewer shares outstanding, Pannier said.

“Overall, the impact was positive,” agreed Steven A. Rockwell, an analyst with Alex Brown & Sons, who assessed the earnings as being stronger than he had expected.

As evidence of Karcher Enterprises’ confidence in its future, Donald Karcher announced Thursday that the board voted a 2-for-1 stock split, payable July 14 to shareholders of record on June 22. The split will dilute earnings per share but will make the stock more available because doubling the number of shares on the market will make it more affordable.

Karcher common stock closed Thursday in over-the-counter trading at $31.50, up 75 cents for the day.

To continue its growth, Donald Karcher told shareholders, the company will continue renovating older outlets and plans to convert to cholesterol-free vegetable oil in a bid to attract health-conscious consumers.

The company will also keep adding new menu items--one as soon as late summer--and will install systems so customers can use debit cards to pay for purchases in all Carl Jr. outlets. “The average check increased 40% to 50% with the use of credit cards (in test stores), so you can see why we’re doing it,” Karcher told shareholders.

Karcher added that the company believes there are still major opportunities to expand in the western United States in the next five years.

After the meeting, Pannier said the company plans to add “several hundred” outlets in its core market of California and Arizona and is evaluating expansion into other states, including Washington.

The company had an ill-fated expansion several years ago--notably into the Texas market just as the state’s oil-dependent economy collapsed. The firm ultimately cut its losses by selling off many of its outlets outside Southern California.

But this time, Pannier said, Karcher Enterprises has “the strongest foundation ever and a strong management team in place. . . . We’re focused. And we’re talking about expansion in our core market--we know that marketplace.”