CHRISTOPHER WOODARD Staff Reporter Jerry’s Famous Deli Inc. has a simple credo: “Repeat business is our lifeblood.” But with a sharp drop in profits, the Studio City-based company is showing signs of anemia. Net income for the second quarter ended June 30 was $108,404 ($.01 cents per fully diluted share), compared with $153,863 ($.01 cents) for the like period a year ago. Revenues were $16 million vs. $13 million with the increase coming from Epicure Market, a gourmet store in Miami Beach the company bought last April. Shares of the company’s stock, which trades on Nasdaq under the symbol DELI, was trading around $1 a share last week down from the $4 range a year ago. Concerned that the company’s stock is not trading for what it’s worth, the board last week announced plans to buy back $300,000 worth of shares in the hope of boosting the price. Company officials say sales at Jerry’s Southern California delis are down for a variety of reasons including bad publicity after the flagship Studio City deli was featured in a KCBS-TV Channel 2 report on unsanitary conditions at L.A. restaurants. As a result of that story, the store was closed for 27 hours by Los Angeles County health inspectors, who said they found health violations, including unclean utensils and food not being properly refrigerated. But company officials concede there may be other problems, and for the first time they have hired a marketing consultant to conduct focus groups with customers and employees to pinpoint areas that need improvement. “We’re trying to really improve from within, and improve based on knowledge of what our customers and our employees think of us,” said Isaac Starkman, the company’s chairman and chief executive. “I think it’s a step in the right direction, and I see it as positive.” In a ranking of restaurants by sales conducted by the San Fernando Valley Business Journal, Jerry’s Studio City restaurant dropped from the No. 2 position in 1996 to the No. 3 spot in 1997. It was bested by the Sagebrush Cantina in Calabasas, which had $8 million in sales in 97, compared to $7.8 million in sales for Jerry’s Studio City operation the same year. Gladstone’s Universal once again topped the list as the highest grossing restaurant, with $10 million in sales, and Bistro Garden at Coldwater in Studio City again came in just behind Jerry’s in Studio City with $7 million in sales. Jerry’s, which went public in 1995, operates 11 restaurants nine delis in Southern California, and the Epicure Market and two Wolfie Cohen’s Rascal House restaurants in Florida. Arthur M. Manask, a Burbank-based restaurant consultant, said the company would be wise to take a hard look at the way it does business. “Jerry’s is in a very, very competitive segment of the industry, fighting against family dining establishments like the Mimi’s, Millies, Denny’s, Du Par’s, Daily Grills,” said Manask. “They’re really right in the middle of it.” Speaking as a customer, Manask said he believes Jerry’s isn’t as competitive as it could be with service and prices, especially when compared to other chains targeting the same market, such as Daily Grill. “They can’t just look good, they’ve got to be good,” he said. After the Channel 2 story, Starkman said the company conducted a top-to-bottom review of its food preparation and handling practices and all its L.A. County stores now have the highest “A” rating. “That did not help,” Starkman said of the brief but well-publicized closure. “I think there was a drop-off in business, but it’s hard to tell.” Starkman said sales were also hurt by the end of 24-hour operation at four of the company’s delis and by El Nino rains, which kept some customers away. Manask, however, said he believes the focus groups will likely identify more serious problems. “I think it’s to some degree a bury- your-head-in-the-sand mentality to blame it on El Nino or the Health Department issue,” he said. “Because the restaurant industry is so competitive, they’ve got to be the best in everything they do, quality, service, price and d & #233;cor.” Peter Romeo, editor of Restaurant Business magazine, said restaurants of all types are having a difficult time due to increasing competition. “So many restaurants are opening up, coming on stream,” he said. “The supply of restaurants is outstripping demand. Everyone is settling for a smaller piece of a smaller pie. In L.A., the city approved permits for $3.3 million in new restaurant construction in the first half of 1998, compared to just $480,000 in permits for the same period last year. Existing restaurants spent about $2 million on renovations and expansions during the first half of the year, compared to $340,000 for the same period in 1997, city records show. “New players, strong regional players, are growing like weeds, ” Romeo said. “That tends to dilute everyone’s sales.” Although saying he is “very concerned” about the chain’s profits, Starkman said he is confident the stores have hit bottom and will begin to rebound, especially as the company hits its peak season in October when customers increasingly look to a hot cup of chicken soup. “We are concentrating fully on the quality of service and the quality of the food to make sure Jerry continues to be what it’s always been, a community gathering place,” he said.