Carl’s Jr. Parent Posts 15% Drop in Net Income

CKE Restaurants Inc., the No. 4 U.S. hamburger maker, said its fiscal first-quarter profit fell 15% because of slow remodeling at its money-losing Hardee’s chain and stepped up competition for its Carl’s Jr. chain.

Net income fell to $19.4 million, or 37 cents a share, for the three months ended May 17 from $22.7 million, or 43 cents, in the year-earlier quarter. Revenue rose 13% to $595.7 million from $528.2 million.

CKE, based in Anaheim, has been hurt by the slow recasting of Hardee’s restaurants into Carl’s Jr. and Star Hardee’s, which have improved menus and more service. About 20% of Hardee’s restaurants were debt-laden stores acquired from Advantica Restaurant Group Inc. in April 1998.

In addition, competition has hurt the Carl’s Jr. chain.

“There’s an extremely competitive environment” for the Carl’s Jr. restaurants, said Selman Akyol, a Pauli Johnson Capital & Research analyst who rates CKE shares “buy.” “The challenge is Carl’s Jr. and getting the Advantica restaurants to [turn] positive.”

CKE warned of its profit shortfall June 2. Before the warning it had been expected to earn 45 cents per share, the average estimate of analysts polled by First Call Corp. Since then, the average analyst estimate dropped to 35 cents, in line with CKE’s expectations of 35 cents to 37 cents.

CKE shares, which have fallen 56% this year, rose 38 cents to $12.88 Tuesday.

The company operates 2,784 Hardee’s, 878 Carl’s Jr. and 112 Taco Bueno restaurants.

Sales at stores open at least one year at company-operated Carl’s Jr. restaurants fell 4.8%. Carl’s Jr. is introducing promotional products, such as a new cheeseburger, designed to bring more customers in without eroding margins, the company disclosed on a conference call with analysts.

Same-store sales at company-operated Hardee’s also declined 4.8%. On the call, the company disclosed that same-store sales for its 557 Advantica Hardee’s fell more than 10% in the quarter, dragging heavily on results.

Same-store sales at the Taco Bueno chain rose 10.6%.