When a restaurant enterprise uses the economy card to explain poor results, my warning bells start to go off. Yes, some are struggling, like Checkers
For the period, net sales limped forward with 0.3% growth to $67 million. Comparable same-store sales of its Big Boy concept declined 1.8%, while its Gold Corral franchise was hammered to the tune of a 10.7% drop for the quarter. The weak sales led to earnings of $0.33 per share, well off last year's mark of $0.54 and below analyst estimates of $0.37.
In the conference call, management pointed to a Midwest snowstorm and customers' increased fuel costs as reasons for the sluggish sales. They added that a weak economy -- as the Midwest transitions from its manufacturing base -- is also contributing to the challenges.
It's true that the Midwest manufacturing base is heading overseas and is being replaced by a service economy, and this dramatic shift has obvious growing pains that need to be dealt with. But it's not as if this is a recent phenomenon. The Midwest has been going through this transition for years.
This same Midwest economy did, however, help Frisch's achieve double-digit revenue growth from 2002 to 2004, until slipping to 7.5% in FY2005. Now through the first half of FY2006, it has managed 1.8% growth. This is a dramatic downshift and indicates there is more to the problem than a snowstorm or escalating fuel costs.
In the conference call, management did admit that "operational execution needs to improve," adding that they have told their restaurant managers to "go back to fundamentals." The company also has a rotating five-year plan in place to renovate existing units, and it expressed optimism over a new marketing campaign. Now this is more like it: Identify the problems and go after them.
While I'll be curiously monitoring Frisch's progress to see if this is enough, I won't have my personal investment at stake. And I don't recommend this investment to others until management can prove it has a winning strategy in place.
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Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.