CKE Reports a Loss of $5.8 Million

CKE Restaurants Inc. said Tuesday that increased expenses and a weather-related sales dip at its Hardee’s fast-food chain contributed to a loss of $5.8 million, or 10 cents a share, in its fiscal first quarter, disappointing analysts who were expecting a profit for the period ended May 19.

In the same quarter a year earlier, the Santa Barbara-based owner of Carl’s Jr. and La Salsa Fresh Mexican Grill restaurants and franchises posted a net loss of $162.6 million, or $3.18 a share, after a write-down of goodwill from its Hardee’s chain. Without that write-down, the company would have logged a $13.2-million gain, or 23 cents a share.

Analysts said CKE’s poor performance in this year’s first quarter largely was due to heavy investment in a new menu, promotional spending and employee retraining in the Hardee’s chain, as well as the effect of brutal winter storms in the Midwest and Southeast, where most Hardee’s restaurants are located.

Companywide sales for the quarter dropped 1% to $419.6 million, from $424.4 million a year earlier.

“Revenue was no surprise and margins at the Carl’s Jr. restaurants were pretty strong,” said Greg Schroeder, fast-food industry analyst with Fulcrum Global Partners, an independent research firm in New York. “But Hardee’s really collapsed.”

The Hardee’s operation posted a loss of $10.7 million, versus a year-earlier gain of $800,000.

By comparison, Carl’s Jr. franchises posted operating income of $18.4 million, down slightly from $18.9 million a year earlier. The company attributed the dip to increasing utility and insurance costs.

Analysts had expected the company to post first-quarter earnings of about 5 cents a share, according to consensus estimates compiled by Reuters Research and Thomson First Call.

Still, investors seemed to take the earnings report in stride. CKE stock was down 19 cents Tuesday to $5.40 in heavy New York Stock Exchange trading.

Schroeder noted that the firm had posted a profit for its full 2002-03 fiscal year. “So this first-quarter dip caused a little worry, but it seems that most investors realize it was an investment quarter for Hardee’s,” he said. “If the new menu gains traction, we expect to see sales and margins improve in the second half.”

Andrew F. Puzder, CKE’s president and chief executive, said the company’s strategy for the Hardee’s segment is “intended to fundamentally change ... the way consumers perceive the brand” and probably will produce uneven results over the next few quarters.”

Sales at Hardee’s restaurants open at least a year fell 3.8%, whereas same-store sales at Carl’s Jr. dipped 0.4%.