Karcher Stock Is Scorched by Dip in Earnings
Carl Karcher Enterprises Inc.'s stock dropped sharply Friday after the operator of Carl’s Jr. restaurants reported a third-quarter earnings decline of 49% from the year-earlier period.
The Anaheim-based company, citing weak consumer spending and the resulting sluggishness in the fast-food business, posted earnings of $2.1 million for the quarter ended Nov. 5, down from $4.1 million a year earlier.
That news evidently hurt Karcher stock, which dropped 15.8% to close in over-the-counter trading at $6 per share, off $1.125.
Besides the weakening economy, Karcher officials said another factor contributing to the earnings decline was the franchising of 40 Arizona restaurants previously owned by the company. Sales from those restaurants boosted third-quarter earnings in 1989 but did not contribute to the latest quarter results.
Revenue fell slightly, to $120.9 million for the latest quarter, from $121.6 million last year.
Loren Pannier, Karcher’s chief financial officer, said the company expects a stronger fourth quarter.
“Even with the disappointing third quarter, I believe the year will end up as the second or third best in the company’s history,” he said. “Out of a 49-year history, that’s a pretty strong statement. I had expected the third quarter to be a weaker quarter.”
The company’s operating earnings declined just 15% in the third quarter, to $6.8 million from $8 million a year earlier. The company attributed the decline to higher revenue a year ago from real estate transactions and a decline in investment and other income in the lastest quarter.
“The numbers on the surface are a little disappointing,” said Thomas F. Caraisco, an analyst for Emmett A. Larkin, a San Francisco brokerage. “The fast-food market has been very difficult and slow. However, they (Karcher officials) have indicated to me they have seen some pick-up towards the end of the third quarter.”
Some fast-food competitors of Carl’s Jr. have tried to make up for sluggish sales by introducing “value pricing"--the practice of marking down prices on a few key items to lure customers. Fast-food purveyors are betting, for instance, that customers will wash down marginally profitable, inexpensive hamburgers with more profitable soft drinks.
Irvine-based Taco Bell Corp. has credited much of its success to the concept; now McDonald’s and Wendy’s are testing the idea.
But Karcher, which operates 561 Carl’s Jr. outlets, has resisted so far, except with its breakfast menu. Patty Parks, a company spokeswoman, said the fast-food chain has introduced a “value menu” of 99-cent items on its breakfast menu but does not plan to make similar changes for other meals.
One effect of the weaker economy, analysts and company officials said, is that some consumers are eating less frequently at sit-down restaurants and turning instead to fast food.
Sarah Stack, an analyst for Bateman Eichler, Hill Richards in Los Angeles, said some customers are eating fast food more frequently “but (some) people have resisted . . . quick-service restaurants because prices have gone up considerably.”
In the third quarter ended Nov. 5, Carl Karcher Enterprises Inc. reported net income of $2.1 million, down from $4.1 million in the comparable period a year ago. The company attributed the loss to a drop in consumer spending that is adversely impacting the fast-food business.
Figures are in thousands except per-share data.
3rd Qtr 3rd Qtr 9 Months 9 Months 1990 1989 1990 1989 Revenue $120,897 $121,558 $403,018 $393,298 Net income (loss) 2,073 4,054 12,419 14,460 Per share (loss) $0.11 $0.22 $0.68 $0.77
Source: Carl Karcher Enterprises