Cucos turnaround effort continues to pay off in fiscal '97

Nation's Restaurant News, Dec 23, 1996 by Mark Hamstra

METAIRIE, La. - Having revamped its executive ranks over the past year and bolstered sales with new advertising and unit refurbishments, Cucos Inc. has bounced back to profitability in fiscal 1996 with net income of $14,950, vs. a loss of $1.5 million in 1995.

In the first quarter of fiscal 1997 ended Oct. 20, the company, which owns 15 and franchises six casual Mexican restaurants in the Southeast under the Cucos Border Cafe name, has continued to build on its upward trend with profits of $6,110, compared with profits of $3,391 in the year-ago first quarter.

Revenues for the first quarter of fiscal 1997 were $6.5 million, a 4.4-percent increase over revenues from the year-ago period.

"There are two ways to increase profits," said president and chief operating officer Elie Khoury. "One is to maintain sales and reduce expenses ... and the other is to build sales with new remodels, increased advertising and a seasonal menu, all of which we did last year."

In 1996 same-store sales grew by 9 percent and guest counts by 10 percent, with average-unit sales climbing to $1.36 million for the year, the company reported. Revenues from sales of food and beverages in 1996 were $21 million, up from the $18.8 million reported in 1995 but still down from the $22 million the company tallied in 1994, when there were seven more restaurants in the system.

Total restaurant expenses, including cost of sales, labor and benefits, occupancy costs and other expenses, were $18.1 million in 1996, or 86.4 percent of sales. In 1995 that figure was 87.6 percent, and in 1994 the company's costs were 87.1 percent of sales.

Less than 1 percent of the company's revenues are derived from franchise fees and royalties.

"Profits will be only marginal for the first half of fiscal 1997 but should improve in the second half," the company projected in a letter to shareholders. "Conventional wisdom suggests the industry will raise prices in the fall to cover the minimum-wage and other cost increases. Our strategy will be to maintain our competitive pricing on existing items while adding popularly priced new items."

Chairman and chief executive Vincent Liuzza Jr. said the company soon hopes to undertake more aggressive expansion.

"Everything we've done over the past year has been getting us ready to enter a new phase of growth," he said.

In the past year Liuzza has relinquished his president's role to longtime Cucos operations manager Khoury. He also promoted Jim Guidry to director of development to oversee real estate and franchise relations and most recently tapped a new chief financial officer to explore fiscal strategies for expansion.

Lee W. Randall, formerly vice president and chief accounting officer at local power company Entergy Corp., replaced Thomas J. Sandeman, who left recently to join, coincidentally, a subsidiary of Entergy, Liuzza said.

A franchisee is set to open a new prototype for the chain, designed by Zakaspace of Fort Lauderdale, Fla., in mid-January 1997 in Des Moines, Iowa.

Meanwhile, the company is exploring expansion of company-owned units in Meridian, Miss.; several markets in northwestern Arkansas; and southern Louisiana.