CKE Reports Sluggish Sales
CKE Restaurants Inc.’s turnaround appears to have hit a bump as sales at restaurants open at least a year, a key industry measure, fell at its Carl’s Jr. and Hardee’s chains.
The Santa Barbara-based company said Monday that same-store sales at Carl’s fell by 3% in the four weeks ended Aug. 12, versus a 6.8% jump for the same period a year earlier. Hardee’s sales dropped 2.8%, compared with a 1.3% hike.
Chief Executive Andy Puzder warned in a release that although the Carl’s brand remains strong, its future same-store sales are expected to fluctuate because of comparisons against last year’s strong performance.
To attain comparable sales growth, the chains must come up with a hit product on the magnitude of the Six Dollar Burger, said Mary Gilbert, an analyst with Imperial Capital in Beverly Hills.
“It’s tough to be able to sustain that level of growth without coming up with another strong product introduction,” she said.
A premium sandwich that actually costs $3.95, the heavily promoted Six Dollar Burger has fueled growth at Carl’s since its introduction last June and at Hardee’s since its appearance in November.
Dennis Lacey, CKE’s chief financial officer, said Carl’s and Hardee’s plan to roll out new products in the late fall. He declined to elaborate.
Although disappointed by the decline in same-store sales, Lacey said he is heartened by the growth of gross margins at Hardee’s, which is expected to come in at 12.3% or more for the quarter ended Aug. 12, more than a 20% increase. He attributed Hardee’s margin growth to an increased emphasis on premium products such as the Six Dollar Burger and chicken-breast strips.
CKE shares lost 35 cents Monday to close at $6.85 on the New York Stock Exchange. The stock has lost more than 24% of its value since the beginning of the year.
Like other burger chains, CKE faces cutthroat competition in the fast-food industry, said Janet Lowder, president of Restaurant Management Services in Rancho Palos Verdes. Recently, Burger King unveiled a slew of successful menu items, including the Chicken Whopper, and Taco Bell has just rolled out chicken and beef bowls.
Adding to CKE’s difficulties, burger sales are soggy. Consumers are increasingly flocking to fresher, healthier fare offered by fast-casual chains such as Baja Fresh, Panda Express and Panera Bread Co.
In 2001, hamburger sales hit nearly $47 billion, only a 2.7% increase compared with a year earlier. By contrast, the $269-billion restaurant industry grew 4.5%, according to Technomic Inc., a restaurant research and consulting firm in Chicago.
CKE has taken important steps to position the chain for future success, CFO Lacey said. The company has paid off about $300 million in bank debt over the last two years. CKE has closed 40 unprofitable Carl’s and 300 underperforming Hardee’s since 1999, he said. To improve food quality, charbroilers have been installed at most Hardee’s.
