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Based on the latest press release it looks like the sale of Au Bon is all but done. This is good news. The charge to earnings was no big suprise, but I don't know why they had to go back and take it in Q3. Maybe tax reasons or some other requirement, I'm not an accountant.

They released some additional information on pro forma SLB CO. EBIT and EBITDA (Earnings Before Interest, Taxes,Dep. and Amort.). They expect '98 EBIT to be in the 3.7-4.1 million range. This compares to 1.9 and 4.4 for '96 and '97. At first glance this looks a little disappointing. They actually decreased EBIT, while their revenues increased 17%. In other words, their operating margins decreased substantially. However, the company has been saying all year that that the front running expenses in organization and infrastructure for all the new cafe's are eating into EBIT. I wish I knew an estimated value of these up front costs so you could get a better idea of the real operating returns. Anyway, these up front expenses should decrease in time and we should see improvements in operating margins going forward. This is a key indicator I will be watching in '99.

Also, with all the new cafe's added last year I would hope to see comp store sale increases back up to around 5%. They were 2.7% for '98 but these came on top of very good gains in '96 and '97. Comp store sales will be another thing to watch in '99.

The other thing to remember is that new stores are showing unit sales of 25,000 a week according to Q3 10K. This is very good and shows the concept is very strong and is being well received. I will watch this number as well in 99 (if they continue to report it).

The last thing I will say is about management. There has been a lot of management bashing on the boards that I follow. I'm not so sure this is fair. After all, I recall an article I read by Peter Lynch a few years back where he stated that ABPCA has good management. Certainly their record has been dismal in the last few years. They now should be focused and it is just a question of can they run their operations efficiently enough to get decent returns on capital. This year and next should go a long way toward answering that question.
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