Earnings Dive 83% at Eatery Operator

Worldwide Restaurant Concepts Inc. said Thursday that its fiscal first-quarter earnings plunged 83% as it continued to feel the effects of last year’s E. coli outbreak at its Pat & Oscar’s chain.

The Sherman Oaks-based company earned $595,000, or 2 cents a share, in the period that ended July 25, down from $3.6 million, or 12 cents, a year earlier. Revenue grew 5% to $82 million.

Worldwide operates 23 Pat & Oscar’s eateries in California, 312 Sizzler steak outlets in the U.S. and Australia and 112 franchised KFC units in Australia.

The quarter’s troubles included a slower-than-anticipated recovery at the Pat & Oscar’s chain from the E. coli outbreak, which sickened about 40 people in October; the bacterial illness was traced to bagged lettuce. Sales at Pat & Oscar’s stores open at least a year dropped 12% in the latest first quarter. At company-owned Sizzler restaurants in the U.S., same-store sales fell 2.2%.

In the quarter, customers also were slow to return to some of the 14 Sizzler stores that were remodeled in Northern California, said Charles Boppell, Worldwide’s chief executive. In addition, he said, rising gasoline prices slowed customer traffic and higher food costs hurt the bottom line. And the company misgauged the cheese market, getting hit with high prices while it was running a pizza promotion at Pat & Oscar’s.

“It’s been a hard quarter and needless to say we’re disappointed with our first-quarter results,” Boppell told analysts in a conference call. “Although we made money, our profits were well behind last year.”

Increases in same-store sales of 7.7% at KFC outlets and 8% at company-owned Sizzler restaurants in Australia were rare bright spots in an otherwise bleak report. The company also said it expected to benefit from a recent 5% price hike on certain menu items at Sizzler.

Boppell said he expected Pat & Oscar’s sales to turn around by the third quarter. The company has taken a number of steps to help the chain recover, he said, including launching a promotional campaign and expanding its catering business.

To try to lure new customers, Pat & Oscar’s also introduced a new line of sandwiches, and its celebrated breadsticks were the focus of a summer promotional campaign that helped raise brand awareness, he said.

One analyst said Pat & Oscar’s turnaround was crucial for Worldwide.

“This is the chain the company intends to be its growth concept,” said Anton Brenner of Roth Capital Partners. “I think it has to establish it can recover from this and grow at a reasonable rate to attract increased interest from investors.”

Shares of Worldwide rose 10 cents to close at $3.25 on the New York Stock Exchange.