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Koo Koo Roo Shares Plummet

Chief Blames Stock's Woes on 'Preferred' Investors' Sales


Koo Koo Roo Inc., the fast-growing but money-losing Los Angeles-based restaurant chain, sought to reassure its shareholders in a news release Wednesday after its stock price dropped to a 52-week low in another day of very heavy trading.

Koo Koo Roo shares fell 9.4 cents to $1.25 a share on Nasdaq. The stock has plunged 84% from its 52-week high of $7.69 a share in January 1997. Just a week ago the price was $2.34 a share.

Chairman Ken Berg on Wednesday blamed at least some of the company's stock woes on a "high level" of conversion of its preferred stock into common stock by investors. If investors have then sold those shares, that would drive down the stock price and dilute the amount of shares outstanding.

Trading in the company's stock has totaled 5.23 million shares so far this week, already more than twice the weekly average of 2.5 million shares over the last eight weeks.

"When our investors see the lines out the door of our restaurants, they don't understand why the stock isn't performing," Berg said. "But if General Motors was attacked and people were selling millions of shares, they'd be in as big of trouble as we are."

Still, others have blamed Koo Koo Roo's woes on its rapid expansion and moves into other types of businesses such as pottery shops, gourmet coffee and hamburger restaurants. Indeed, despite its apparent popularity in Southern California, Koo Koo Roo has never had a profitable quarter and has lost more than $35 million since 1990, company records show.

If Koo Koo Roo's stock continues to stagnate at low prices and the chain doesn't begin to post a profit, it could find it very difficult to raise capital to continue expanding.

Koo Koo Roo, which was founded in 1988 by brothers Michael and Raymond Badalian, specializes in flame-broiled skinless chicken and side dishes. Berg, a former mortgage banker, bought control of the company in the early 1990s and spearheaded the chain's expansion.

Koo Koo Roo now operates 40 restaurants, mostly in Southern California. On Wednesday, the company opened new restaurants in Santa Barbara and Boca Raton, Fla.

Berg said Koo Koo Roo's stock price has dropped in recent months because of investors who bought about 290,000 shares of preferred stock last February for $100 a share. The deal, sold by Cappello Capital Corp. in Santa Monica, raised $29 million for the company.

In recent months, investors have reportedly converted about $8 million of those preferred shares into shares of common stock, though the company would not confirm figures.

With the preferred stock, the number of common shares potentially outstanding has ballooned to 24 million from 15 million in 1996.

"We borrowed the money to make it a big company, and we borrowed it in the form of a convertible. That's turning out to be not such a good thing," Berg said.

He said he plans to meet with those preferred shareholders in the next few weeks and is in discussions with Cappello on "restructuring alternatives."

Some analysts are concerned that Koo Koo Roo may have other, as yet undisclosed, woes. That uncertainty is keeping many buyers out of the market.

"Sellers don't cause a stock to go from $2.50 a share to $1.25 overnight," said John Frye, a portfolio manager with Daniel H. Renberg & Associates in Beverly Hills, which holds shares of Koo Koo Roo stock for investors.

In 1996, Koo Koo Roo acquired Color Me Mine Inc., a small chain of do-it-yourself pottery studios. But last year, it announced that it signed an agreement to sell the company. The deal is expected to close next month.

Last April, Koo Koo Roo purchased 14 Hamburger Hamlet restaurant locations for about $11.45 million out of Bankruptcy Court. A spokesman for the company said those are profitable. It also owns Arrosto Coffee Co.


Record Low

Troubled Koo Koo Roo Inc., saw its stock price drop to a record low Wednesday, as sharesfell 9.4 cents to $1.25 on Nasdaq. Weekly closes and latest:

Wednesday: $1.25

Source: Tradeline

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