Rally's into major change as losses mount in 3rd q

Nation's Restaurant News, Nov 27, 1995

LOUISVILLE, Ky. - Citing "extremely disappointing" third-quarter results, officials at Rally's Hamburgers Inc. said the company had initiated a plan "focusing on four basic is steps to stem these losses."

The loss reported for the third quarter widened to $17.32 million from the year-ago quarter's loss of $4.50 million. Revenues rose a slight 1.8 percent, to $49.85 million, vs. $48.96 million.

For the nine months ended Oct. 1, Rally's said losses totaled $22.07 million compared with $7.29 million in the same period a year ago. Revenue edged up 1.4 percent, to $142.16 million, from $140.29 million.

The third-quarter results, according to Michael E. Foss, senior vice president and chief financial officer, "continued a two-year trend of poor operating performance."

Foss said the company is moving into "more decentralized decision making and taking actions to drive down its infrastructure costs to more affordable levels."

The plan for basic changes, outlined by Foss, calls for testing new marketing and promotion strategies; selectively modifying "price/value relationships" vs. its competition; continued testing of the dual hamburger and Mexican food menu and an aggressive program for closing nonperforming units.

"Management no longer expects that receipt of fair refranchise offers on the majority of the affected units is likely," Foss said.

The company previously reported that it was seeking to refranchise "or otherwise dispose" of up to 60 low-performing units in smaller, noncore markets. Six of them have been closed, and 16 more will be shut down before the end of this year.

But the company said it now expects to continue operating 38 of those units because it has not been able to work out satisfactory arrangements for their disposal. In addition, Rally's has identified nine more low-performing units that will be shut down this year. It has taken a $12.94 million charge against earnings in the third quarter to account for the 25 closings. During the quarter Rally's reported opening one new unit, while franchise operators opened eight and closed two. An additional 30 units were disenfranchised. At the start of this month, the company said 493 Rally's units were in operation.

The company cautioned that third-quarter charges for disposition of assets represented "our best estimates" and that actual disposition of the assets plus expected changes in asset-accounting procedures could impact future earnings.