THE worse-than-expected results announced by Fairwood Holdings on Tuesday were largely due to a $5 million loss posted by its Thousand Island Food Plaza operation and higher rents. Fairwood's profits climbed 21.1 per cent to $70.3 million for the year ended March 31 while sales rose 44.5 per cent to $879.4 million. The profit growth was significantly below analysts' forecasts, as a consensus of 20 brokerages called for a 41 per cent increase to $82 million. In fact, every forecast in The Estimate Directory was above Fairwood's actual profit. Several analysts said Thousand Island's $5 million loss came as a surprise because they were not given any indication by management that the operation would be a money-loser. Standard Chartered analyst Y.K. Ng, who was looking for profits of $81 million, said that after meeting with management in April he had expected the Thousand Island operation to at least break even. ''I talked to them about it [Thousand Island] but they told me it wasn't doing well,'' he said. ''I didn't expect a loss. I think some analysts were probably misled.'' Nomura Research analyst Gordon Crosbie-Walsh said he was disappointed with Fairwood's results after looking for profits of $76 million. He said that during a meeting with management five weeks ago there was no mention that Thousand Island would lose money. However, it appears that not every investment house was in the dark about Thousand Island. W.I. Carr, Jardine Fleming and Credit Lyonnais lowered their earning forecasts after being told it would lose money. According to The Estimate Directory, Jardine Fleming forecast on April 30 that Fairwood would make $82 million. This was lowered last month to $73 million after a visit with the company. Fairwood director of finance and administration Kenneth Ying Tze-man said a number of analysts who closely followed the stock and who had met with management were told about Thousand Island's troubles. However, he said it was not something he talked about every time an analyst called. Mr Ying said some analysts might not have realised the significance of rental increases on Fairwood's bottom line. He said 17 leases came up for rental adjustment, which took place half-way through a six-year lease, compared with just five in 1991-92. Many rents jumped 25 to 30 per cent. Rental costs were also increased by the growth of the Mario Italian Restaurant chain, located in prime areas commanding higher rents. An encouraging development was the growth of Fairwood's operations in China, which posted a profits of $3 million. Mr Ying said the five stores in southern China opened in October and had not enjoyed the strong sales that usually took place during the summer. Fairwood plans to open 10 restaurants in the next three to four months with the goal of having more than 20 outlets in Shenzhen, Dongguan, Guangzhou, Zhongshan and Zhuhai. Fairwood's stock, which had traded as high as $5.10 in late March, dropped 15 cents yesterday to $3.15. It now has a price-earnings multiple of 19.6 and a prospective 1994 PE of 13.6.
