Hardee’s Lack of Sizzle Worries CKE Investors

Shares of CKE Restaurants Inc. are getting charbroiled by investors, who apparently want improved performance from the Hardee’s franchise more quickly than the hamburger chain can dish it up.

Anaheim-based CKE, best known for its Carl’s Jr. fast-food outlets, has had a lot to chew on since it purchased 557 Hardee’s restaurants from franchisee Advantica Restaurant Group Inc. on April 1. CKE now owns 47% of the restaurants in the Hardee’s chain, and CKE officials say the new stores will add to earnings immediately.

But investors are worried about another set of Hardee’s outlets: 788 ailing restaurants that CKE acquired last July, along with the Hardee’s Food Systems Inc. franchise, from Imasco Ltd.

CKE has succeeded in taking costs out of Hardee’s, but while operating margins at the former Imasco restaurants doubled to just under 13% in the fourth quarter ended in January, they won’t reach the Carl’s Jr. level of 24.2% unless sales grow, said CKE spokesman Loren Pannier. By comparison, the healthier Hardee’s acquired from Advantica have margins somewhere around 20%.

But sales are not growing. In fact, same-store sales at Hardee’s were down 9.3% in the fourth quarter. CKE’s stock has flamed out, too. In New York Stock Exchange trading Wednesday, it closed at $29.81, down 94 cents for the day and 35% off the 52-week high of $46.25 set Feb. 4.

“I think the stock has been weak because of concern in the market that they [CKE] won’t be able to turn Hardee’s around,” said BT Alex Brown analyst Steven Rockwell. He added that he thinks CKE’s managers are up to the task.

Pannier attributed the sales decline at Hardee’s to a paring-down of the menu, and said Hardee’s had launched a new ad campaign on April 20 and is working to improve the food quality.

“We’ll probably put charbroilers in all the restaurants,” Pannier said. Customers have repeatedly expressed a preference for the taste and lower fat content of charbroiled burgers, a specialty of Carl’s Jr., over meat fried on a grill.

CKE’s plan to rein in costs at Hardee’s for the first six to 12 months, then to zero in on sales in the six months after that, is on track, he said. “If anything, we’re ahead of schedule,” Pannier said.

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Carl’s Gets Clobbered

CKE Enterprises stock reached a 52-week high of $46.25 in February, but investor concern over the firm’s purchase of the ailing Hardee’s chain is helping to drive down CKE’s share price. Weekly closing stock prices and Wednesday’s close:

Jan. 2: $37.33

Wednesday’s close: $29.81

Source: Bloomberg News; Researched by JANICE JONES DODDS/Los Angeles Times