Struggling CKE’s Latest Loss Worse Than Expected
CKE Restaurants Inc., which owns the Hardee’s and Carl’s Jr. hamburger chains, posted a larger loss than expected Thursday for the fiscal third quarter as increased costs and declining sales at Hardee’s restaurants ate into its bottom line.
The Anaheim company also said its plans to sell its Taco Bueno chain, aimed at further reducing CKE’s debt, have stalled.
CKE appears to be facing an uphill battle, analysts said. “We have no way of projecting when this company will turn a profit,” said Allan F. Hickok, an analyst at U.S. Bancorp Piper Jaffray.
CKE’s stock closed Thursday at $2.25, down 69 cents a share, in New York Stock Exchange trading. The shares have fallen more than 61% this year.
CKE’s loss from continuing operations totaled $7.4 million, or 15 cents a share, in the quarter ended Nov. 6, as sales fell 10% to $407.5 million. Analysts were anticipating a loss of about 9 cents a share. A year earlier, the company earned $3 million, or 6 cents a share.
The company is trying to revive sales at Hardee’s, its biggest chain, by improving service and cleanliness.
Some outlets now offer table service, charbroiled hamburgers or all-you-can-drink beverage bars. CKE also has been selling more of its restaurants to franchisees.
But the costs of remodeling restaurants have taken a toll on the bottom line.
In the most recent quarter, CKE also had pretax losses of $31.9 million on the sale of company-operated restaurants and charges related to increasing its reserves for self-insurance and store-closing costs. Including these items, CKE said its loss was $29.4 million, or 58 cents a share.
In a key indicator of Hardee’s struggles, sales in company-operated and franchised restaurants open at least a year fell 5.9%. By contrast, same-store sales inched up 2% at Carl’s Jr. restaurants.
CKE also suffered a setback in its effort to chip away at its debt when its tentative deal to sell its Taco Bueno chain to Commercial Revolution in San Diego for about $90 million failed to proceed as planned. Loren Pannier, CKE senior vice president of investor relations, said the company expected to find another buyer but was unsure about whether a future transaction would fetch the same price.
CKE said its debt totals $683 million. The company has until Dec. 20 to pay $60 million to its banks, with another $60 million coming due in late January, analyst Andrew Barish at Robertson Stephens pointed out Thursday in a report.
“Obviously these payments take priority for management, but leave little for the [shareholders] to be excited about,” Barish wrote.
Pannier said the company hopes to “meet those hurdles” by selling additional restaurants.
CKE Chief Executive Andrew F. Puzder expressed frustration with the company’s recent performance. “We will never be satisfied with a quarter in which we lose money, and we are not satisfied with this one,” he said in a release.
He said the company had sold 341 Hardee’s and 43 Carl’s Jr. restaurants and other assets, raising $123.6 million. CKE also has “several transactions pending,” including a pending sale of some Carl’s Jr. restaurants that would help reduce debt further, Puzder said.
CKE operates more than 3,800 restaurants through its units, franchisees and licensees. They include 2,724 Hardee’s, 973 Carl’s Jr. and 125 Taco Bueno outlets.
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Bloomberg News was used in compiling this report.
