Boston Chicken Molts Amid Officer Shake-Up

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By Louise Kramer
Staff Reporter

Investors have been flying out of

Boston Chicken

(BOST)

in droves this week. On Thursday, the selloff turned into a scene from

Alfred Hitchcock's

The Birds

after the company announced the resignation of fast-food veteran Larry Zwain, the head of its

Boston Market

chain. Despite the naysayers, several analysts had good words for the company.

Boston was the second-most-heavily-traded

Nasdaq

stock Thursday, with volume of 13.7 million shares, nearly 10 times its average daily volume of 1.5 million shares. That's after Wednesday's session where 10.7 million shares traded hands. The stock lost 1 3/8 Thursday to close at a 52-week low of 16 3/4.

The company said Scott Beck, chairman, president and chief executive of Boston Chicken, will take over day-to-day management of the chain, while co-founder Saad Nadhir, who stepped down from his co-chairman role earlier this year to work on other company projects, will return as co-chair.

The company's strategy to bring a fast-food mentality to the chain, with lunch deals and whole chickens for a dollar, has failed to drive profits, Boston admits. Lunch sales increased at the expense of dinner, Boston's core business. Now dinner will get the most management and marketing attention, the company says.

Also, Boston is finalizing a reorganization plan. Restaurant staff are safe, and

Einstein/Noah Bagel

(ENBX)

, in which Boston has a 53% stake, won't be affected, the company says.

Karen Rugen, a company spokeswoman, said sales will be flat or down for the second quarter, which ends July 13. Sales were down slightly in the first quarter. Boston Chicken will take a special charge against earnings related to the reorganization, she said. Not accounting for the charge, the company is "comfortable" with

First Call

earnings estimates of 33 cents per share for the quarter, Rugen says. A conference call with analysts is slated for Monday.

Thursday

Goldman Sachs

said it downgraded Boston Chicken to market outperformer. Several analysts from other firms, none of which have done underwriting for the company, say the selloff doesn't mean there's nothing to crow about.

"It's good news because Scott Beck and Saad Nadhir are back running the ship. That's extremely important and should be received well," says Mitchell Pinheiro of

Janney Montgomery Scott

, who has a buy on Boston and no desire to change it. "The sky is not falling.

"They've lost $1.7 billion in market capitalization since Dec. 3," he notes. "I have a hard time believing the intrinsic value of the Boston Market chain has declined $1.7 billion."

Allan Hickok of

Piper Jaffray

says he's keeping his strong buy recommendation. "The thing has been growing like a weed for a long time," he says. "Now there is going to be some rationalization."

Paul Westra of

Salomon Brothers

says it makes sense for the company to focus on its strength at dinner. "Focusing so much attention on

lunch in the relatively early stages pushed consumer perceptions to stereotype Boston Market as a fast-food player." Westra downgraded Boston from a strong buy to hold in December 1995 when the stock was at about 35.

With the right approach, a chain like Boston Market has potential, Westra says. "I still think that ultimately the home-meal replacement specialist positioning could ultimately prove very profitable and successful," he says. "It's a very expensive proposition to learn the correct way to go after that business."

Roger Lipton, a restaurant analyst who has gained a celebrity of sorts because of his long-standing negative view of Boston, says he's not gloating. "Professionals don't jump up and down," he says. "I've long since been vindicated from a fundamentals standpoint." Lipton maintains a small short position in the company. "I had to for intellectual purposes," he quips.

Zwain was lured to Boston Chicken in February 1996 from

PepsiCo

(PEP) - Get Report

, where he was president and chief executive of the company's international fast-food operations for

Taco Bell

,

Pizza Hut

and

KFC

. He spent the beginning of 1997 recovering from a serious skiing accident, but had been back at headquarters for some time. Earlier this month, another PepsiCo veteran, Jay Willoughby, Boston Market's chief operating officer, left to head

Caribou Coffee

, a coffee chain based in Minneapolis.