Cara suffers sharp setback after attacks

Cara said system sales declined by 3.6 per cent to $373.9-million compared with the year-earlier period, while gross revenue fell 5.3 per cent to $256.8-million.

The Globe and Mail
October 30, 2001

Cara suffers sharp setback after attacks
Oliver Bertin

Cara Operations Ltd. suffered a sharp drop in its airline business after the terrorist strikes of Sept. 11, and the company warned yesterday that the impact may affect results for the rest of the year.

"We expect earnings before unusual items for fiscal 2002 to be lower than those of last year," Gabe Tsampalieros, president and chief executive officer, warned in his second-quarter report, released yesterday.

But he cautioned that it was difficult to forecast the impact of the attacks on the company's performance.

Airline food makes up only about 20 per cent of Cara's revenue, and the period covered by the second-quarter results ended Sept. 16, only five days after the catastrophes.

The financial results were buoyed by rapid growth in Cara's food distribution business and in its restaurants — Swiss Chalet, Harvey's, Kelsey's and Montana's — all family-style chains that tend to fare well during economic slumps. However, revenue declined because the results reflect the sale of its prosperous Beaver Foods Ltd. cafeteria division.

Cara said system sales declined by 3.6 per cent to $373.9-million compared with the year-earlier period, while gross revenue fell 5.3 per cent to $256.8-million.

Despite the revenue decline, profit rose by 25.2 per cent over the same period to $12.3-million or 13.3 cents a share.

For the six months, system sales fell by 6.1 per cent to $720.4-million, while gross revenue fell by 8.9 per cent to $494.9-million.

But profit rose by 12.9 per cent to $20.4-million or 22 cents a share.

System sales include revenue from the franchisees and independent restaurant owners. Gross revenue does not. The year-earlier performance includes Beaver's results.

The company said its mid-level restaurants are doing so well — despite the economic slump — that Cara's gross revenue rose by 17 per cent in the second quarter and its profit rose by 26 per cent from the same period the year before. Those year-over-year comparisons are adjusted to exclude the Beaver cafeteria business, which was sold last December.

Cara has also offered to purchase three million shares of Second Cup Ltd., at a price of $7 a share.

That would take its holding to 71 per cent from the current 38 per cent.

The prospectus is expected in the next few days.

Both companies are based in Toronto.

In the report, Mr. Tsampalieros said the airline catering division suffered from a slowdown in air travel after the terrorist attacks and the costs of ramping up a new flight kitchen in Toronto. But those setbacks were offset by substantial new business that Cara picked up when former Canadian Airlines International Ltd. was merged with Air Canada.

As a result, revenue for the airline division rose by 6.9 per cent in the second quarter to $66.7-million.

Also, second-quarter sales for the Summit food distribution business rose by 41 per cent to $93-million due to the opening of a new distribution centre in Mississauga. Kelsey's revenue rose 21 per cent to $78-million, Swiss Chalet rose by 5.6 per cent to $92-million and Harvey's went up by 3.7 per cent to $66.4-million.

The company does not report profit for the individual divisions.

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