Grills Put Company Back in Black : Expansion: Once-ailing American Restaurants is turning a profit after buying Hudson’s chain.

At a Hudson’s Grill restaurant, a hamburger costs about $4. The same $4 can buy two shares of stock in American Restaurants Corp., which owns the Hudson’s Grill chain. And that speaks volumes about the problems ARC is trying to overcome.

ARC, based in Ventura, was on its back two years ago. At that time it mainly operated 35 Wendy’s fast-food franchises, but some sat on expensive real estate leases that ate up profits and others lacked strong management. As a result, ARC lost $7 million from 1985 through 1988 on sales of roughly $20 million a year.

But in 1988, the company hired Charles L. Boppell as president and chief executive. A veteran of the fast-food wars, Boppell was a former executive of Pizza Hut, Taco Bell and Godfather’s Pizza.

Once he arrived at American Restaurants, Boppell directed the sale of two-thirds of its Wendy’s restaurants to eliminate the struggling ones. He also arranged the purchase of a company that owned several Hudson’s Grills, a Southern California restaurant chain with a mild 1950s diner theme, sit-down service and moderate prices.

Hudson’s appealed to Boppell because it gave him an opportunity to run his own business, rather than heading a division or a franchise, and for ARC itself to expand the Hudson’s concept.

And after shuffling the lineup, Boppell has ARC making money again, its balance sheet is healthier and he has big expansion plans. The company--which owns 12 Hudson’s, 11 Wendy’s and four specialty restaurants such as the State & A, a sandwiches/bar restaurant in Santa Barbara--earned $442,000 on sales of $23 million in the 48 weeks ended Dec. 31. (ARC changed its fiscal year-end to Dec. 31 from Jan. 31 last year.) In this year’s first quarter, it had a $93,616 profit.

“I call it a phoenix company, rising out of the ashes,” said Roy J. Millender Jr., an ARC director and its biggest stockholder with a 40% stake.

The 13-year-old company also has decided its future is Hudson’s, which it owns outright, and not in being a Wendy’s franchisee, even though its remaining Wendy’s are profitable. (Among other things, ARC must pay Wendy’s 4% of its gross sales for extending ARC the franchise.) ARC expects to open 25 more Hudson’s over the next three years, and it has begun to market franchises.

ARC executives bristle at the suggestion that Hudson’s Grills are 1950s diners, preferring to say the restaurants “flirt with the 1950s.” Why be so persnickety? Because ARC does not want to be pigeonholed as a ‘50s diner. Instead, it plans to regularly and subtly change its identity as the years go by to stay fresh.

But change or not, Hudson’s market is chock-full of competitors anxious to curb its growth. They include Chili’s, Fuddrucker’s, Marie Callender’s, Coco’s and Red Robin, to name just a few rival mid-priced restaurant chains.

Indeed, Red Robin doesn’t even keep close track of Hudson’s Grill because “they’re too small,” said Madison Jobe, vice president of Irvine-based Red Robin, which has 61 outlets in 11 states and Canada.

Then there’s the prospect of an economic recession, which could crimp ARC’s growth plans if consumers eat at home more often to save money. Boppell isn’t worried. “We’re going to benefit from people coming down from the expensive” restaurants when they choose to dine out, he said.

It’s also likely that ARC will soon need a cash infusion to help pay for its growth plans, considering a typical Hudson’s costs $400,000 to build and $275,000 to furnish. The company had $539,000 in cash reserves as of July 1, but Boppell conceded ARC “could use some more money.”

He’s mulling whether to get another bank loan, sell additional shares of stock or otherwise raise funds. But Boppell probably will have to wait until he can show a longer string of profits before lenders or investors will provide more cash.

“It’s not a crisis, so we’re not out beating the bushes” for funds, he said.

Nonetheless, those potentially negative factors have investors wary. Despite ARC’s improvement, its stock is trading at $1.50 a share, the same price it fetched 18 months ago. Then again, only about 10% of ARC’s stock is owned by the general public, so it’s a thinly traded “pink sheet” issue. Boppell, Millender and other insiders own most of it.

The question is whether Hudson’s Grills can keep generating steady profits. “By saying we flirt with the ‘50s, we think we can attract people that like that, but not be in that niche when it overheats,” Boppell said. “The authentic ‘50s cafe, I think, may be doomed to what happened to the fern bars, that is, they get overbuilt and people get tired of them. We’re going to move 15-20% a year in our concept.”

There’s no denying the ‘50s flavor at a Hudson’s Grill, however. The chain’s name is a play on the front grille of the Hudson automobile, which was built from 1909 until 1957 when, after merging with Nash to form American Motors Corp., it was discontinued.

The restaurants feature thick hamburgers and thicker milkshakes on the menu, a jukebox on the floor and other ‘50s paraphernalia on the walls including an actual Hudson car’s front grille that appears to be smashing through the wall above--what else--the restaurant’s cooking grill.

But the restaurants also feature chicken dishes, fajitas, appetizers and other ‘90s dishes. Waitresses don’t wear poodle skirts, they wear polo shirts, and none are on roller skates.

This “moving concept” strategy was devised by Boppell, 48, a Santa Cruz native who before joining ARC had already retired because he received stock and other severance pay from PepsiCo Inc.’s Taco Bell unit and Godfather’s that “allowed me the financial flexibility not to have to work,” he said.

He said he left those companies mainly because he didn’t enjoy being head of someone else’s division. As a “retiree” between 1985 and 1988, he bought Ventura Toyota, a car dealership of which he still owns 51%, and dabbled in real estate.

In 1988, Millender and other ARC directors asked him to help divest the company’s loss-ridden Wendy’s outlets. He also arranged ARC’s purchase of International Eateries Corp., which owned the Hudson’s Grills, from Travis L. Bryant for $4.8 million and warrants that give him the right to purchase 1.7 million shares, or about 24% of ARC, at a certain price within a specified period.

As part of the purchase, Boppell came with it to head ARC. “I was antsy to get back into business,” he said. He also got about 6% of ARC’s stock, a holding he has since raised to about 12%.

It’s people in Boppell’s age group, 35-55, who are making Hudson’s market potentially lucrative, he said. Those people have by and large “moved past the fast-food experience” and want sit-down service, but “don’t want to make a large commitment of time or funds,” he said. The company’s future will depend on how many move past Hudson’s Grill on their way.