Struggling O'Charley's restaurant chain ousts CEO Jeff Warne

Jeff Warne's resignation Friday as president and chief executive officer of O'Charley's was not much of a surprise for those watching the recession-weary restaurant business and its recent hard times.
The company has had declining revenues for each of the past three years and lost money during the past two years.

"When the team is losing, the coach gets fired,'' said Bryan Elliott, an analyst with Raymond James & Associates. "They are losing market share, and the brands have been suffering."

Elliott said the O'Charley's brand is smaller than its competitors, such as Applebee's or T.G.I Friday's, meaning it can't afford to do daily TV advertising like the bigger chains. Despite that, Elliott maintains an outperform rating on the stock because he thinks it is undervalued.

The stock ended the trading day Friday down 32 cents per share to $6.92, less than one-third of its value three years ago.

"They are not in financial peril,'' Elliott said. "They have a modest amount of debt and are cash flowing reasonably well."

Warne declined to comment on his departure, and the company's chairman, Philip Hickey, who will take over temporarily as chief executive officer until a replacement can be found, was not available.

Hickey will be paid $50,000 per month for June, July and August, the company said in a securities filing.

Jeff Omohundro, a senior analyst with Wells Fargo, wrote in a note that Warne's departure signals "a new direction at the company given the continued challenging economic environment."

What that new direction will be remains unclear.

New value menu

O'Charley's recently rolled out a new value menu with entrees as low as $8 to try to attract the cash-strapped consumer. Although previous value meals have driven profits lower, the new menu encourages people to buy an extra soup, salad or dessert for $2.99, which could bump up profits, Elliott said.

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