CKE Restaurants Inc., parent of the Carl's Jr. and Hardee's fast-food chains, said Monday that earnings and revenue more than doubled for the fiscal first quarter, triggering a 17.4% gain in the Anaheim-based company's stock.
Analysts said the stock price surge, on a day when the market generally took a pounding, means investors are gaining confidence in CKE's ability to turn around the Hardee's chain.
CKE recently bought 557 formerly franchised Hardee's restaurants from Advantica Restaurant Group Inc. and now operates almost half the chain.
"This company's credibility is being built every quarter that we learn more about the Hardee's development," said Mark Sheridan, an analyst with Johnson Rice & Co. in New Orleans. "This is a new business for [CKE] and they have significantly exceeded expectations to date."
The stock closed at $37.94, up $5.63 on the New York Stock Exchange. Investor concern over CKE's acquisition of Hardee's has been dragging down the stock price in recent months. CKE shares had fallen into the low $30s after trading as high as $46.25 in February.
Earlier Monday, CKE reported the net income for the first quarter ended May 18 rose to $22.7 million, or 47 cents a share, from $10.6 million, or 28 cents a share, for the same period last year. Analysts had expected the company to earn 40 cents a share.
Revenue totaled $528.2 million, up from $235.3 million, reflecting the Hardee's acquisition, which was completed in July.
Most encouraging were the operating margins, analysts said. CKE reported improved margins at Carl's Jr. and Hardee's restaurants, as well as the smaller Taco Bueno chain.
Sales at Carl's Jr. outlets in business more than a year--a key indicator of performance in the industry--increased 5.2%, the 12th consecutive quarter of same-store sales growth for that chain. Taco Bueno's same-store sales rose 6.9%.
Same-store sales at Hardee's dropped 10.8%, but CKE said the chain's profits grew because of a variety of cost-cutting measures.
"In this year's first quarter, Hardee's earned $22 million [before taxes], compared to $4 million a year ago," said Loren Pannier, CKE's senior vice president of investor relations.
Pannier said the sales slippage at Hardee's is a self-inflicted wound, since CKE deleted some menu items. Over time, more selections will be added to the menu, he said. "We have to take our medicine before we can get better," he said.
CKE bought the struggling 3,100-outlet Hardee's chain from Montreal-based Imasco Ltd. last year, dramatically expanding CKE's presence east of the Mississippi River. The chain consisted of about 800 company-owned and 2,300 franchise-operated restaurants.
Earlier this year, looking to gain more control over the sprawling chain, CKE bought 557 Hardee's restaurants that it didn't own from South Carolina-based Advantica.
While CKE had earlier considered selling about 110 Hardee's stores, the company now expects to keep more outlets due to the improvements in operations and profits, Pannier said.
Now, the company hopes to boost sales at Hardee's with better food and innovative marketing. For example, the company will use thicker bacon slices on its bacon burger, he said, and "real mayonnaise" instead of the low-fat variety.
Some restaurants have switched to dual menus--pairing Hardee's breakfast items and Carl's Jr. fare for lunch and dinner. Breakfast has traditionally accounted for 40% to 60% of the Hardee's sales.
Charbroilers will eventually be installed in all Hardee's restaurants, Pannier said.
A defined strategy is precisely what Hardee's was lacking before its new ownership, said Selman Akyol of Pauli & Co. in St. Louis, adding that it was considered "a broken brand."
"It was a brand that had distribution through over 3,000 outlets but didn't really have an identity," he said.
Generally, analysts applauded CKE's efforts. "We are highly confident in their management," Akyol said. "Despite the stock being up, we still think it has a ways to go."
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CKE Restaurants' stock jumped more than 17% on Monday on news that its earnings and revenue doubled for the first fiscal quarter. Weekly closing stock prices and Monday's close:
Monday's close: $37.94