Sea Galley Reports Loss In Quarter -- Chain Rolling Out Strategy To Check Declining Sales

MOUNTLAKE TERRACE

Sea Galley Stores Inc. yesterday reported a net loss of $858,000, or 27 cents per share, on restaurant sales of $4,988,000 for the first quarter, compared with a net loss of $956,000, or 31 cents per share, for the year-ago period.

Discontinued operations accounted for $90,000 of the loss. Other expenses, including write-downs, reserves for potential severance payments and bond interest, accounted for $358,000.

Restaurant sales were off 11.9 percent for the quarter, and the number of guests dropped 12.4 percent.

To counteract the falling sales, Sea Galley is rolling out a new concept, says Tye Minckler, chief financial officer.

The lunch menu features $2.99, $3.99 and $4.99 specials, including home-style cooking and entrees for the health conscious, Minckler says. The new dinner menus have not been determined, but, he says, they also will feature lower prices. The changes are consistent with consumer demand, Minckler says.

For the past three years, prices at Sea Galley have risen every year, in part to cover inflation costs and rising labor expenses. Now, with the new lower-priced menus, the troubled restaurant chain is cutting its margins in an attempt to shore up lackluster sales.

For the first quarter, food costs, labor expenses and other charges totaled nearly 82 percent, leaving a profit margin of about 18 percent. Minckler says he is not sure how much the lower-priced menus will cut that margin. The trick to becoming profitable again, he says, is watching costs carefully and attracting more customers.

"We are bringing back the value that got this company going in the first place," says Jan Young, newly elected president and chief executive officer. "We have introduced a new lunch and dinner menu which features significantly lower prices, a free all-you-can-eat salad bar with any dinner entree." The new menu will be introduced at all Sea Galley restaurants by June 1, he says.

Longer term, Young said, Sea Galley expects the new menu and prices to increase revenue and profits.

To improve cash flow for the short term, management is pursuing various alternatives, including selling the one remaining American Ranch & Home Store, refinancing certain restaurants through sale/leaseback transactions and selling or subleasing restaurants that aren't contributing enough to sales.

The Ranch & Home Store concept, which catered to rural needs, was an experiment in diversification that failed to produce the results the company hoped to achieve.

Sea Galley sold its Moses Lake and Pasco Ranch & Home stores in fall 1990. The remaining store, in Mount Vernon, is on the market. Minckler says several parties are interested in the store, but no firm offers have been made.

Changing concepts and selling off assets is nothing new for Sea Galley. The restaurant chain has tried several different strategies in the past and struggled with poor revenues for several years. It has also sold restaurants and abruptly reversed various growth strategies.

The latest change was the naming of Young as president and chief executive of the chain in April. Young replaced Kim Krieg, who took Sea Galley's reins only the year before, with the mandate of turning the company around. Young has been a Sea Galley director since 1985 and has been involved in the financial restructuring of Sea Galley during the last two years.

Sea Galley will face its shareholders at an annual meeting scheduled for 9 a.m. June 18 at the Everett Pacific Hotel.