Butler Resigns as Head of Naugles Restaurants

Suffering record losses for the fourth quarter and fiscal year, Naugles Inc. said Thursday that Chairman and Chief Executive Harold Butler has resigned the two posts he held for 15 years and has been replaced by Chief Financial Officer Wayne Withers.

Butler, who 30 years ago founded Denny’s Restaurants and is regarded as a forefather of the coffee shop chain format, will remain a director of Naugles and has been named chairman emeritus.

The announcement came as no surprise to industry analysts and executives who have watched Butler, 64, reduce his role at the Fullerton-based Mexican fast-food chain over the past year while nurturing his latest endeavor, an upscale deli chain, Herschel’s Deli & Bakery Co. Herschel’s, a six-store operation, which Butler plans to convert to public ownership in October, will relocate from Fullerton to Riverside in the next few months, Butler said.

$9.3-Million Loss for Year

For the fiscal year ended June 30, Naugles reported Thursday that it lost $9.3 million, nearly double the $5-million loss that the company reported in fiscal 1984. For the quarter, Naugles reported a net loss of $7.54 million, compared to net income of $105,000 during the year-ago quarter.

The quarterly loss included a $5.5-million provision for losses related to more than 35 restaurants that closed in fiscal 1984. The company has been unable to sell a number of these, Butler said.

Revenue, however, rose slightly for the quarter and fiscal year. Revenue for the fiscal year was $124 million, up from $114 million.

Fourth-quarter revenue was $30.8 million, compared to $27 million during the year-earlier quarter.

Naugles operates 218 company-owned restaurants in eight states, with most in Southern California. The company also has seven franchise units.

Butler, who owns 36% of Naugles, leaves behind a troubled company that prospered in the ‘60s and ‘70s but that analysts say failed to stay competitive in the ‘80s. “They never really came out of the ‘60s and got with the times,” said Barbara Dawson, West Coast editor of the trade publication Restaurants & Institutions. “By the time they tried to upgrade, it was too late.”

Withers, 50, said he hopes to make the chain competitive again, primarily by becoming “more aggressive” in marketing. “We’re aware that we don’t have a distinctive corporate identity like McDonald’s or Carl’s Jr.,” Withers said.

Less than a month from now, the company’s board will set into motion a new operating plan that is likely to include a new focus on corporate image, Withers said. Recently, the chain began its first advertising campaign.

Went to Sav-On Drugs

Twenty years ago, Withers was hired by Butler as chief financial officer at Denny’s. Withers moved on to become chief financial officer at Sav-On Drugs and worked there 10 years until Butler hired him two years ago to groom him for the chief executive post at Naugles.

“We’re going to take two steps back and take a whole new look at our product,” Withers said. He noted that everything from the menu items to the look of the restaurants will be reviewed.

Meanwhile, Butler vowed that Herschel’s, of which he owns 96% and which reported sales of more than $6 million in fiscal 1985, will be the last restaurant concept he tests. “If I fool around with anything else, my family will string me up,” he said. “Sometimes you have to hang up the bow and arrow.”