In a bid to improve its sagging bottom line, Carl Karcher Enterprises Inc. said Wednesday that it will close 27 restaurants in Texas and Arizona, apparently ending its national expansion plans as part of a "back-to-basics" turnaround strategy.
Karcher will, however, retain 26 Arizona restaurants and plans to build 20 new Carl's Jr. units in the next year in its "core area" of California and Arizona, company officials said.
The Anaheim-based fast-food chain said it would set up a reserve of $12 million to $15 million for its fiscal 1987 fourth quarter ending Jan. 26 to provide for wind-down costs and eventual losses from the sale of the stores.
Loren Pannier, chief financial officer, declined to estimate final results because the tax consequences and final sale price of the restaurants are unknown.
But he said the after-tax effects of the writedown could be all or partially offset by the $6 million in net income that he expects Karcher to realize for fiscal 1987.
Pannier said the company expects fourth-quarter operating income of about $1.8 million on revenue of about $77 million. That compares to earnings of $1.2 million in the fourth quarter of fiscal 1986 on revenue of $78 million.
Karcher said it is negotiating the sale of the units with several parties but declined to identify any of them. Twenty-one of the units are in Texas and six are in Arizona.
Donald F. Karcher, president and chief operating officer, said the firm didn't have enough Texas restaurants to be competitive. He said the company would have had to spend as much as $80 million to increase its market share there.
The six restaurants that will be closed in Arizona were too close together, company officials said, hurting sales for all Carl's Jr. units there.
The closings, which began Wednesday and will be completed by Jan. 26, leave 360 company-owned restaurants in California, Arizona and Utah.
Karcher began expanding throughout the West in 1984, when it announced plans to become a 1,000-unit, $1 billion-a-year restaurant chain.
Back to Basics
A year later, when the fast-food industry hit a slump, Karcher announced its back-to-basics program that slimmed down the menu and concentrated growth in Southern California.
Wall Street reacted to the news of store closings on Wednesday with moderate trading. Karcher stock closed at $17.375, up 25 cents per share.
"People like the fact that they're getting rid of these dog stores," said Jeff Holmes, an investment analyst with the Milwaukee Co. "It's a big step toward solving their problems."
Karcher's decision to retain most of its Arizona units left analysts cautiously optimistic about the company's future.
"Arizona is a good growth area over the long term," said Graeme MacLetchie, senior vice president with the New York investment firm of Cyrus J. Lawrence, Inc. "If they can really get back to basics, they'll get their fair share of the market . . . maybe not this month, but over the next two to three years."
For the first three quarters of the current fiscal year, Karcher reported net income of $4.2 million on revenue of $240.1 million. That contrasts with earnings of $3.8 million on revenue of $249.6 million in the first three quarters of last year.