PEOPLE : Circle K CEO Steps Down as Retailer Restructures

Karl Eller, the hard-charging Arizona financier who turned Circle K into a huge but deeply indebted retail chain, resigned Monday as the company’s chairman and chief executive.

Analysts welcomed the news but said Circle K--the nation’s second-largest convenience store chain--still will be hard-pressed to avoid filing for bankruptcy court protection this year.

Analysts also said Eller’s widely expected departure probably was engineered by Carl H. Lindner, the Cincinnati investor and longtime Eller associate who is Circle K’s biggest shareholder.

In a news release, Circle K said that “with the company now in the process of a planned financial restructuring, he (Eller) feels it is time for him to step aside” and give directors “the latitude to establish new objectives for the future.” Neither Eller, 61, nor Lindner could be reached, and other company officials declined to elaborate.

No new chief executive was named. For now, the company will be managed by Robert A. Dearth Jr., its president and chief operating officer. Dearth, 45, joined Circle K in January after leaving his job as a vice president at a Lindner-controlled fruit company, Chiquita Brands International.

Eller got his start as a billboard advertising salesman, and he eventually put together a diversified communications firm that was bought out by Gannett Co. He joined Gannett as an officer and director but quit in 1979 after waging an unsuccessful battle to push out then-Chairman Allen H. Neuharth.

Eller took the reins of Circle K in July, 1983, when the Phoenix-based company was a chain of roughly 1,200 stores. He oversaw a spree of acquisitions that built Circle K into the current empire of 4,641 convenience stores in 32 states, along with 1,400 jointly owned or licensed outlets in 13 foreign countries. (In California, there are 605 stores, including roughly 130 in Los Angeles and Orange counties.)

For a time, Circle K prospered, with earnings hitting $60.4 million in its fiscal 1988. As Circle K’s debt climbed to its current $1.2 billion, however, the company’s profit last year fell 74%, and an attempt to sell the company failed.

Over the nine months ended last Jan. 31, Circle K reported a loss of $25.5 million on sales of $2.8 billion.

“Their basic problem was that they assumed this was an easy business,” said Barbara Wedelstaedt, an analyst with the Chicago investment firm Duff & Phelps.

Wedelstaedt said Circle K was caught off guard by an industrywide downturn. Circle K and its competitors--including industry leader Southland Corp., parent of 7-Eleven--have been hurt by growing competition from supermarkets that are keeping longer hours and from new convenience stores being opened by oil firms.

On top of that, Wedelstaedt said, Circle K has managed its operations poorly, putting stores in weak locations and failing to keep close track of inventories.

On May 15, Circle K is due to give further details of its restructuring plans. The company already has said it wants holders of roughly $500 million in junk bonds to swap their debt for stock in the company. Circle K also is expected to try to sell some of its stores.

But Wedelstaedt said Circle K will have a hard time trying to win the support of bondholders.