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  Will KFC help Worldwide Restaurant shares sizzle?

BENJ GALLANDER and BEN STADELMANN

Saturday, June 22, 2002

As we sit here licking our chops waiting for KFC's Toonie Tuesday, our investment last December in Worldwide Restaurant Concepts Inc. (SZ-NYSE) at $1.11 (U.S.) is quickly giving us a mouth-watering return.

Currently trading at $2.60, the stock price is not that far off our initial sell target of $3.24, where it is likely that 50 percent of our position will be peddled.

Then, we hope, it's on to the previous height of $5 where the stock traded in 1995, still a far cry from 1991's $15 and change.

Worldwide, previously known as Sizzler Corp., almost went out of business in the mid-nineties. A high debt load, coupled with low margins, pushed this firm into a major reorganization. After a number of years of seeking a recipe for profit, black ink is finally the order of the day with total revenue last year of more than $250 million. Sales increased 9 percent last quarter, and $300 million is a munchable target this year.

While not well known in Canada, Worldwide does have a strong presence in the United States and Australia, as well as a growing Asian profile. The firm boasts more than 350 Sizzler Restaurants, mostly south of the border, 15 Pat and Oscar's in Arizona and California, and more than 100 Kentucky Fried Chicken's in Queensland, Australia.

The Sizzler chain has been the major challenge for this company. Sizzler based its prosperity on a buffet, which after creating an initial buzz, quickly drooped like aged celery.

One of the primary difficulties was the high level of waste. Customers, whose eyes were bigger than their stomachs, would stock up at the buffet, leaving truckloads for the trash man.

To counteract this, the firm introduced the "Buffet Police," and while this did eliminate some of those who wanted to snatch and chew without paying the tab, many prospective clients were deterred by their need to show a pass to get the grub.

Eventually, the Buffet Police were disbanded.

Sizzler continued to fiddle with the buffet recipe. Items were changed to enhance margins and when customers filled their plates, they were doing so on smaller dishes. This decreased waste.

The Australian angle makes Worldwide an enticing play on the American dollar.

Last year, revenue was negatively affected by about 3 percent as the U.S. dollar continued its relentless climb. Now, the Australian currency is making a comeback. This could enhance profit, and we figure it could be by as much as 10 percent.

One wild card is the rollout of the Pat and Oscar's chain, which began a few years ago. While currently accretive to earnings, opening new restaurants is a risky, costly business, with a high burn ratio.

We like to think that Worldwide has the magic formula down pat, but the restaurant public is notoriously fickle.

That remains a possibility with the Pat and Oscar's chain, which was purchased in fiscal 2000 by Worldwide for what we perceived as an inflated price.

Before buying into this corporation, it sat on our Stock Watch List for about five years as the organization's struggles were observed. Our purchase decision was finally stimulated by a large number of insider buys that came in around the $1 mark.

Is Worldwide still a buy? Our suspicion is that our secondary sell target will play out in the next couple of years, making this a rewarding return. However, given our penchant for lofty returns, and our desire to sell some of the position soon at the initial target, we recently moved this outfit to a "hold."

Note: This is our last column for Net Worth. We wish to thank our readers.



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