Naugles Inc.

ORANGE COUNTY

Naugles Inc., the Fullerton chain of Mexican-American restaurants, said Friday that it lost $230,000 in the second quarter, ended Jan. 10, compared with a profit of $748,000 for the same period a year ago.

Profits for the first half of its 1985 fiscal year, Naugles said, dropped 86% to $260,000, from $1.9 million in earnings for the first half of fiscal 1984.

Second-quarter revenues were down 3.2% to $27.6 million, compared with $28.5 million last year. During the first half, revenue totaled $65.9 million, up 4.1% from the $63.1 million posted for the same period last year, the 198-store fast-food chain reported Friday.

Naugles President Mike Mooslin said he does not expect the third quarter to be profitable, either, but maintains that Naugles “is looking at a profitable year and a very profitable fourth quarter.” In fiscal 1984, the company lost $5 million, all the losses coming in the third quarter.

Mooslin attributed the current quarterly declines to “a soft market” for the fast-food business overall and to the elimination of franchise sales. In the second quarter of 1984, Naugles generated $1.2 million from franchise fees, a program that since has been halted.

In a statement released Friday, Naugles Chairman Harold Butler said, “Omitting the franchise revenues, Naugles saw a slight increase in restaurant sales over the prior year.”

Naugles has incurred problems, Mooslin said Friday, because it built so many of its restaurants in the last two years, and many of those were in new markets where it is taking them longer to gain a profitable customer base.

“You track this company by looking at the year in which the restaurants opened and tracking each year’s batch. We see nice trends developing, almost like child growing up, but where the company gets into trouble is that we had a relatively small base of restaurants, about 62 or 63, in 1982. We built about 160 more (a number of them since closed) in the next two years.

“The first few years of a restaurant’s life are not profitable,” Mooslin said, “but when they come into maturity they will show profits. In coming years, the 1983-84 batch is going to mature and newer restaurants are going to produce even faster because they are being built in established markets in Southern California. We are positioning the company now for a nice rebound and upward pressure on earnings,” he said.