CKE Restaurants, Inc. Reports Third Quarter Income From Continuing Operations of $7.5 Million, or $0.13 Per Diluted Share
CARPINTERIA, Calif., Dec. 12 // PRNewswire-FirstCall // -- CKE Restaurants, Inc. (NYSE: CKR) announced today third quarter results and the filing of its Report on Form 10-Q with the Securities and Exchange Commission ("SEC") for the twelve weeks ended Nov. 5, 2007.
Third Quarter Highlights
-- Same-store sales increased 0.7 percent at Carl's Jr.® and 2.7 percent
at Hardee's® company-operated restaurants, compared to the prior year
quarter.
-- Average unit volumes for the trailing-13 periods increased to
$1,486,000 and $945,000 at company-operated Carl's Jr. and Hardee's
restaurants, respectively.
-- Consolidated revenue for the current year quarter was $351.6 million, a
0.8 percent decrease from the prior year quarter. Company-operated
restaurants revenue for the current year quarter was $273.3 million, a
2.7 percent decrease from the prior year quarter. Both consolidated
revenue and company-operated restaurants revenue comparisons have been
negatively impacted by the refranchising of 106 Hardee's restaurants
during the current fiscal year.
-- Third quarter operating income was $19.5 million versus $26.7 million
in the prior year quarter. The $7.3 million decrease in operating
income was primarily attributable to a number of factors.
1) Food and packaging costs increased by 110 basis points (an impact of
approximately $2.9 million), primarily due to substantial price
increases in bakery and dairy products, which impacted Hardee's food
costs because of its larger breakfast daypart. Food and packaging
costs at Carl's Jr. as a percentage of company-operated restaurants
revenue were relatively flat versus the prior year quarter.
2) Occupancy and other restaurant operating costs increased by 110 basis
points (an impact of approximately $2.9 million), due primarily to
higher depreciation related to our new point-of-sale (POS) system at
Carl's Jr., and our ongoing remodel program at both brands. To date,
we have remodeled 133 Carl's Jr. restaurants (33% of our
company-operated store base) and 63 Hardee's restaurants (11% of our
company-operated store base). Hardee's also experienced a 50 basis
point increase in general liability expense resulting from
unfavorable claims reserves adjustments during the third quarter.
3) Labor and employee benefits at Carl's Jr. as a percentage of
company-operated restaurants revenue were relatively flat compared to
the prior year quarter. Hardee's experienced a 20 basis point
decrease in such costs. Lower workers' compensation expense (40 basis
points at Carl's Jr. and 50 basis points at Hardee's) resulting from
favorable adjustments to our workers' compensation reserves largely
offset the higher direct labor expense related to minimum wage
increases at the federal and state levels.
4) General and administrative expenses decreased by $1.9 million during
the third quarter. The decrease was primarily attributable to our
cost reduction efforts, a reduction in management bonus expense and
the impact of our refranchising program, which were partially offset
by an increase in share-based compensation expense.
5) Facility action charges were $0.3 million during the third quarter
compared to a credit of $1.4 million during the prior year quarter.
The credit in the prior year quarter was primarily due to gains on
the sale of surplus properties that did not recur in the current year
quarter.
-- Third quarter income before income taxes and discontinued operations
was $12.9 million versus $22.0 million in the prior year quarter. This
year's income before income taxes and discontinued operations decreased
as a result of the factors discussed above, as well as a $3.9 million
increase in interest expense (including a $1.8 million, or
approximately $0.02 per diluted share, expense to mark-to-market our
interest rate swap agreements), a $0.8 million decrease in other
income, and a decrease of $2.8 million in conversion inducement
expense.
-- Third quarter income from continuing operations was $7.5 million, or
$0.13 per diluted share, versus $11.1 million, or $0.16 per diluted
share, in the prior year quarter.
-- Third quarter net income was $6.2 million, or $0.11 per diluted share,
versus $9.5 million, or $0.14 per diluted share, in the prior year
quarter.
-- Restaurant operating costs as a percentage of company-operated
restaurants revenue on a consolidated basis were 81.6 percent versus
79.7 percent in the prior year third quarter, which represents a
190 basis point increase. The increase was primarily due to higher food
and packaging costs (110 basis points) and higher occupancy and other
expense (110 basis points), slightly offset by lower labor and employee
benefits (30 basis points). This increase in the current quarter was
less significant than the increase in the prior quarter. The current
year second quarter consolidated restaurant operating costs as a
percent of company-operated restaurants revenue was 300 basis points
higher than the prior year second quarter.
-- The Company repurchased 4,796,899 shares of common stock during the
quarter at a total cost of $80.1 million.
-- Since the end of the third quarter, the Company has repurchased an
additional 447,700 shares at a total cost of $6.7 million.
-- For the forty weeks ended Nov. 5, 2007, the Company generated earnings
before interest, income taxes, depreciation and amortization, facility
action charges and share-based compensation expense ("Adjusted EBITDA")
of $129.4 million, versus $143.9 million in the comparable prior year
period. For the trailing-13 periods ended Nov. 5, 2007, the Company
generated Adjusted EBITDA of $166.6 million.
-- Fully diluted shares outstanding for the twelve and forty weeks ended
Nov. 5, 2007, were 59.0 million and 64.6 million, respectively.
Executive Commentary
Andrew F. Puzder, president and chief executive officer, said:
"Third quarter income from continuing operations was $7.5 million, or $0.13 per diluted share, versus $11.1 million, or $0.16 per diluted share, in the prior year quarter. This $3.6 million decrease from the prior year quarter was primarily due to continued commodity pressures and increased depreciation and amortization expense, as well as higher interest expense incurred as a result of increased borrowings to fund our share repurchases during the fiscal year to date, and $1.8 million, or $0.02 per diluted share, of third quarter charges to mark-to-market our interest rate swap agreements."
"On a consolidated basis, restaurant operating costs increased 190 basis points over the prior year third quarter. This increase was primarily due to the impact on Hardee's breakfast of increased commodity costs and the impact of higher depreciation due to our installation of a new POS system at Carl's Jr. and our remodel program."
"This 190 basis point increase represents a 110 basis point sequential recovery as compared with the second quarter, when restaurant operating costs increased 300 basis points over the comparable prior year quarter. This narrowing is due to a number of factors including a price increase we took at the beginning of period 10, the last period of third quarter. While it impacted only one period, this price increase, in conjunction with other actions, made third quarter food and packaging costs and labor and employee benefits at Carl's Jr. consistent as a percentage of company-operated restaurants revenue with the prior year quarter. In addition, a $2.5 million second quarter charge related to a 1982 workers' compensation claim represented 90 basis points of the 300 basis point increase in restaurant operating costs during the second quarter.
"To further narrow this gap, we took an additional price increase near the beginning of period 11 in both brands. To date, we have seen no discernible negative impact to our sales trends. We will have a more meaningful understanding of the impact of these price increases on our operating results at the end of fourth quarter."
Carl's Jr.
"Same-store sales at company-operated Carl's Jr. restaurants increased 0.7 percent during the third quarter. On a two-year cumulative basis, Carl's Jr. same-store sales were up 6.9 percent for the third quarter. Revenues at company-operated Carl's Jr. restaurants increased $3.8 million, or 2.9 percent, over the prior year quarter due to the same-store sales increase and a net increase of eight company-operated units for the fiscal year to date," continued Puzder. "During the quarter, Carl's Jr. featured the Patty Melt burger and reintroduced the Portobello Mushroom Six Dollar Burger(TM) during the final week of the period. Carl's Jr. also promoted the latest varieties of its Hand-Scooped Ice Cream Shakes & Malts(TM), the Strawberry Banana Smoothie Shake(TM) and OrangeSicle(TM). Average unit volume at company-operated Carl's Jr. restaurants increased to $1,486,000, a $46,000 increase since the end of fiscal 2007, and an all-time high for the brand."
"Carl's Jr. restaurant operating costs at its company-operated restaurants increased by 130 basis points over the prior year quarter, to 78.8 percent of company-operated restaurants revenue. The increase was due to higher occupancy and other expense primarily related to higher depreciation due to our new POS system and our ongoing remodel program. Food and packaging costs, as a percentage of company-operated restaurants revenue, were relatively flat versus the prior year quarter. Labor and employee benefits as a percentage of company-operated restaurants revenue were also relatively flat for the quarter, as favorable adjustments to our workers' compensation reserves offset the higher direct labor expense related to minimum wage increases at the federal and state levels. Carl's Jr. generated $14.6 million of operating income during the third quarter, compared to $16.5 million in the prior year quarter."
Hardee's
"Same-store sales at company-operated Hardee's restaurants increased 2.7 percent during the third quarter. On a two-year cumulative basis, Hardee's same-store sales were up 8.3 percent for the third quarter," added Puzder. "Revenue from company-operated Hardee's restaurants decreased $11.3 million, or 7.6 percent, from the prior year quarter. This decrease is due to our refranchising of 106 Hardee's restaurants during the first three quarters of fiscal 2008. Hardee's featured the Patty Melt Thickburger(TM) and Hawaiian Chicken Sandwich during the quarter. Hardee's also debuted the Country Breakfast Burrito(TM) during the breakfast daypart. Hardee's company-operated restaurants average unit volume increased to $945,000, a $29,000 increase since the end of fiscal 2007, and a ten-year high for the brand, which is as far back as we can check."
"Hardee's restaurant operating costs at its company-operated restaurants increased 260 basis points over the prior year quarter, to 84.3 percent of company-operated restaurants revenue. The increase was primarily due to a 210 basis point increase in food and packaging costs as a result of substantial price increases in bakery and dairy products, which represent a greater percentage of Hardee's food costs compared to Carl's Jr. because of its larger breakfast daypart. Occupancy and other expense increased 70 basis points primarily due to unfavorable general liability expense adjustments versus the prior year quarter. A favorable adjustment to our workers' compensation claims reserves and the impact of the menu price increase implemented at the beginning of period 10 more than offset the impact of federal and state minimum wage increases, resulting in a 20 basis point decrease in labor and employee benefits versus the prior year quarter. For the third quarter, Hardee's generated operating income of $4.6 million, compared to $10.2 million in the prior year quarter."
"During the third quarter, we returned approximately $83.7 million to our stockholders through share repurchases and cash dividends during the quarter, including the repurchase of 4,796,899 shares at a total cost of $80.1 million. For fiscal year 2008 to date, we have repurchased 13,646,919 shares at a total cost of $240.4 million."
"We also continued with our strategic initiative to refranchise approximately 200 Hardee's restaurants, which we originally announced in April. To date, we have completed the refranchising of 136 Hardee's restaurants in the Midwest and Southeast, including 60 restaurants in the third quarter, and 30 restaurants in the Kansas City market announced last week."
"With respect to our restaurant operations, we will continue to focus on the fundamentals of our business, including our premium product strategy, superior customer service, and effective, cutting edge advertising. We will also continue to implement our capital plan particularly with respect to our remodel and dual-branding initiatives. Both of these programs continue to generate positive returns. Finally, we will continue to return capital to our stockholders," Puzder concluded.
As of the end of its fiscal 2008 third quarter, CKE Restaurants, Inc., through its subsidiaries, had a total of 3,052 franchised, licensed or company-operated restaurants in 42 states and in 14 countries, including 1,121 Carl's Jr. restaurants and 1,915 Hardee's restaurants.
Conference Call
The Company will host a conference call and webcast on Dec. 13, 2007, at 9:00 a.m. (EST) / 6:00 a.m. (PST) to review these results, discuss the Company's progress and provide more information on the Company's growth plans. The Company invites investors to listen to the live webcast of the conference call at http://www.ckr.com under "Investors."
SEC Filings
The Company's filings with the SEC are available to investors at http://www.ckr.com under "Investors/SEC Filings."
Non-GAAP Financial Measures
Adjusted EBITDA is a non-GAAP measure used by our lenders as an indicator of earnings available to service debt, fund capital expenditures and for other corporate uses. Adjusted EBITDA is not intended to be a substitute for net income determined in accordance with GAAP.
Safe Harbor Disclosure
Matters discussed in this news release contain forward-looking statements relating to future plans and developments, financial goals and operating performance that are based on management's current beliefs and assumptions. Such statements are subject to risks and uncertainties that are often difficult to predict, are beyond the Company's control and which may cause results to differ materially from expectations. Factors that could cause the Company's results to differ materially from those described include, but are not limited to, whether or not restaurants will be closed and the number of restaurant closures, consumers' concerns or adverse publicity regarding the Company's products, the effectiveness of operating initiatives and advertising and promotional efforts (particularly at the Hardee's brand), changes in economic conditions or prevailing interest rates, changes in the price or availability of commodities, availability and cost of energy, workers' compensation and general liability premiums and claims experience, changes in the Company's suppliers' ability to provide quality and timely products to the Company, delays in opening new restaurants or completing remodels, severe weather conditions, the operational and financial success of the Company's franchisees, franchisees' willingness to participate in the Company's strategies, the availability of financing for the Company and its franchisees, unfavorable outcomes in litigation, changes in accounting policies and practices, effectiveness of internal control over financial reporting, new legislation or government regulation (including environmental laws), the availability of suitable locations and terms for the sites designated for development, and other factors as discussed in the Company's filings with the Securities and Exchange Commission.
Forward-looking statements speak only as of the date they are made. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
events or otherwise, except as required by law or the rules of the New York
Stock Exchange.
CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Twelve Weeks Ended Forty Weeks Ended
November 5, November 6, November 5, November 6,
2007 2006 2007 2006
Revenue:
Company-operated
restaurants $273,319 $280,821 $941,639 $947,079
Franchised and
licensed
restaurants and
other 78,303 73,566 254,876 245,760
Total revenue 351,622 354,387 1,196,515 1,192,839
Operating costs
and expenses:
Restaurant
operating costs:
Food and
packaging 82,298 81,539 279,761 272,614
Payroll and
employee
benefits 78,261 81,087 273,901 274,355
Occupancy and
other 62,459 61,228 207,706 200,240
Total
restaurant
operating
costs 223,018 223,854 761,368 747,209
Franchised and
licensed
restaurants and
other 60,373 54,881 197,685 184,137
Advertising 15,829 15,825 55,861 55,030
General and
administrative 32,636 34,516 110,278 111,316
Facility action
charges, net 287 (1,424) (1,513) 909
Total
operating
costs and
expenses 332,143 327,652 1,123,679 1,098,601
Operating income 19,479 26,735 72,836 94,238
Interest expense (7,686) (3,812) (17,442) (15,918)
Conversion
inducement expense -- (2,807) -- (6,406)
Other income, net 1,079 1,872 3,291 3,427
Income before income
taxes and
discontinued
operations 12,872 21,988 58,685 75,341
Income tax expense 5,388 10,882 23,851 33,377
Income from
continuing
operations 7,484 11,106 34,834 41,964
Loss from
discontinued
operations (net of
income tax (benefit)
expense of $(500)
and $1,841 for the
twelve and forty
weeks ended
November 5, 2007,
respectively, and
$(821) and $(920)
for the twelve and
forty weeks ended
November 6, 2006,
respectively) (1,282) (1,649) (3,856) (2,123)
Net income $6,202 $9,457 $30,978 $39,841
Basic income per
common share:
Continuing
operations $0.13 $0.16 $0.57 $0.67
Discontinued
operations (0.02) (0.02) (0.06) (0.03)
Net income $0.11 $0.14 $0.51 $0.64
Diluted income
per common share(1):
Continuing
operations $0.13 $0.16 $0.54 $0.60
Discontinued
operations (0.02) (0.02) (0.06) (0.03)
Net income $0.11 $0.14 $0.48 $0.57
Dividends per
common share $0.06 $0.04 $0.18 $0.12
Weighted-average
common shares
outstanding:
Basic 55,908 68,001 61,312 62,233
Dilutive effect
of stock
options,
convertible
notes and
restricted
stock 3,056 4,004 3,238 10,481
Diluted 58,964 72,005 64,550 72,714
(1) The interest and amortization costs adjustment for the 2023
Convertible Notes, net of tax, which is added to the Company's net
income for the diluted earnings per share calculation, was $102 and
$341 for the twelve and forty weeks ended November 5, 2007,
respectively, and was $152 and $1,743 for the twelve and forty weeks
ended November 6, 2006, respectively.
CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED PRESENTATION OF NON-GAAP MEASUREMENTS
(In thousands)
(Unaudited)
Twelve Twelve
Weeks Ended Weeks Ended
November 5, 2007 November 6, 2006
Net income $6,202 $9,457
Interest expense 7,686 3,804
Income tax expense 4,888 10,061
Depreciation and amortization 14,769 14,545
Facility action charges, net 287 (10)
Share-based compensation expense 2,850 2,009
Adjusted EBITDA $36,682 $39,866
Forty Forty Trailing-13
Weeks Ended Weeks Ended Periods Ended
November 5, 2007 November 6, 2006 November 5, 2007
Net income $30,978 $39,841 $41,309
Interest expense 17,464 15,916 21,299
Income tax expense 25,692 32,457 25,134
Depreciation and
amortization 49,679 47,245 64,852
Facility action
charges, net (2,218) 3,526 2,802
Share-based
compensation expense 7,755 4,934 11,189
Adjusted EBITDA $129,350 $143,919 $166,585
SOURCE CKE Restaurants, Inc.
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