Naugles Cuts Quarterly Loss; Profitability Near, Analyst Says

Naugles Inc. said Wednesday that it trimmed losses for its fiscal fourth quarter to $573,000 from the year-ago net loss of $7.5 million, and an analyst said the company appears to be approaching its first quarterly operating profit in two years.

Additionally, the Orange-based operator of Mexican-American fast-food restaurants said that it has stemmed a recent sales decline, thanks largely to its inaugural mass media campaign, menu changes and exterior face lifts for most of its 170 restaurants.

The company reported revenue of $29.3 million for the fourth quarter, 11.5% lower than the year-ago figure of $33.2 million. But Naugles has closed 40 restaurants--19% of its operations--since last fiscal year.

For its 1986 fiscal year ended June 30, Naugles posted a net loss of $31.4 million, more than triple the $9.2-million net loss recorded in its fiscal 1985. The year-end loss includes a $22-million reserve set aside in the third quarter to cover current and future losses associated with the closing of 70 restaurants, 30 of which still remain open.

Annual revenue of $125.1 million was only 1% lower than its fiscal 1985 revenues of $126.4 million.

The latest report brings Naugles’ losses to $46 million for the last three fiscal years.

“This has been a difficult year,” said Wayne Withers, Naugles’ chairman and chief executive. “But the operating and marketing steps we have taken are improving the company’s results, and we hope to see continued progress in the coming year.”

Collins Foods International Inc., which owns 50.1% of Naugles, this spring began enacting a plan to boost Naugles’ sales and cut its costs. Analysts generally regard Los Angeles-based Collins--which operates a large number of Sizzler family steak restaurants and Kentucky Fried Chicken outlets--as a profitable, well-managed company.

One analyst was optimistic about Naugles’ latest earnings reports and its hoped-for turnaround.

“It (Naugles) is approaching profitability very quickly,” said Sarah Stack of Bateman Eichler, Hill Richards Inc. “With only six months of Collins’ influence, the company is about to break even or make money. I think they’ve really made remarkable progress.”

Also at Collins’ urging, Naugles spent at least $6 million to air television commercials, mail discount coupons and repaint about 160 restaurants.

Collins now wants to bolster its ownership in Naugles. The company’s holdings will jump to 91.8% if Naugles’ stockholders approve--as they are expected to--a swap of stock for $3 million in credit and 111 of Collins’ Kentucky Fried Chicken restaurants. That plan is to be voted on at a special Naugles’ shareholders meeting Sept. 30.

At its annual shareholders meeting last month, Collins forecast a small operating profit for Naugles in its fiscal 1987 second quarter. Stack said Wednesday that Naugles’ latest results indicate the company is on track.

“At this point it’s my understanding that well over half the stores are operating profitably,” Stack said.

She emphasized that Naugles may post a net loss for its fiscal second quarter ending Dec. 31 even if it records an operating profit because of costs associated with the anticipated assets swap with Collins.