In a cloud industry, Jerrico has a Long John Silver's lining

Nation's Restaurant News, Sept 1, 1986 by Rick Telberg

In a clouded industry, Jerrico has a Long John Silver's lining

As one of the few bright spots in an otherwise bleak industry, Jerrico Inc., the owner of the 1,388-unit Long John Silver's Seafood Shoppe fast-food chain, is demonstrating that there is still money to be made in the restaurant business.

The Lexington, Ky., company received high marks for cost control after recently posting its annual financial report, which showed that the company parlayed a 9% revenue gain, to $564.3 million, into a 22% earnings jump, to $27.3 million, or $1.29 per share, in the fiscal year ended June 30.

Per-unit sales at the 844 company-owned Long John Silver's rose 7%, to $515,000, as earnings gained 17%, to $93,400, yielding one of the highest operating margins in the business.

The company also operates Jerry's coffee shops and has opened an Italian dinnerhouse called Florenz in Cincinnati. Two more Florenzs are due to open by February.

Jerrico's story is being heard clearest, and perhaps retold most often, on Wall Street. The company's stock price reached more than $26 per share in May, after a long run-up that began at $9 per share in March 1984. Recently, the stock has been trading at about $24.

"For the last year,' said Steven Rockwell at Alex. Brown in Baltimore, "Jerrico's same-store sales have consistently outperformed the industry.'

"Jerrico's performance,' said Jay B. Fairfield at A.G. Edwards & Sons Inc. in St. Louis, "is especially impressive . . . [because] it follows a period [from 1981 to 1985] when earnings were in a slow-growth to no-growth stage.'

It was early 1984 when John Tobe, the company's former chief financial officer who succeeded Ernest Renaud as president, began instituting a turnaround program that has yielded steadily rising store-level sales and margins.

Over the past 18 months, Long John Silver's introduced Kitchen Breaded Fish, as a lighter alternative to its mainstay battered entree, and all-white-meat chicken nuggets. A Chicken Planks sandwich and catfish filets followed.

Tobe has also ended heavy discounting and boosted advertising spending to 5% of sales from 4.5%, Value Line, a New York based investment survey, noted.

In addition, Karl Matthies at Montgomery Securities in San Francisco noted, "An active remodeling program will be virtually complete by December.' Three of every four company outlets were revamped last year, and all franchised units are due to be completed over the next year, Jerrico said.

Jerrico plans to lengthen the fish chain by 120 new units this year and 150 annually in coming years.

"The company is still in the early stages of testing a broiled product line,' said Richard Simon at Goldman Sachs in New York.

But how long can Jerrico's momentum last? "Our major concern,' Simon added, "lies in the overall softness of the restaurant industry and the economy.'

Stock-pickers' picks: The chartists at the Piper, Jaffray & Hopwood brokerage in Minneapolis are intrigued with restaurant issues as "an interesting long-term speculation for selective and aggressive investors.' No widows and orphans here.

Richard Pyle, the fundamentalist at Piper, has stopped following Flakey Jake's (recent price: 88^) and Fuddruckers ($3.88), because of lack of interest and beclouded outlooks. Nevertheless, Pyle is still bullish on International Dairy Queen ($32), especially after a better-than-expected second quarter.

Craig Weichmann at Morgan, Keegan & Co. in Memphis likes what he sees at Morrison ($23). But he's held off signaling "buy' because the company's false starts in the past left trigger-happy investors with powder burns.

Chili's ($23) lost 14% of its value with the falling price of Texas crude, but Richard Simon at Goldman, Sachs & Co. in New York still sees 35% annual earnings growth for a stock priced at 18 times next year's earnings, and he's advising investors to buy into it.