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CKE Restaurants, Inc. Reports Third Quarter Net Income of $5.4 Million, or $0.10 Per Diluted Share

By: CKE Restaurants |  0 Shares     84 Reads

Carpinteria, Calif.--(BUSINESS WIRE)--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. 3, 2008.

Third Quarter Highlights

• Third quarter income before income taxes and discontinued operations was $9.2 million versus $12.9 million in the prior year quarter. This year's results include $4.9 million of interest expense to mark-to-market our interest rate swap agreements versus a $1.8 million expense in the prior year quarter. Absent these mark-to-market adjustments, third quarter income before taxes and discontinued operations would have been $14.1 million versus $14.7 million in the prior year quarter.
• Third quarter net income was $5.4 million, or $0.10 per diluted share, versus $6.2 million, or $0.11 per diluted share, in the prior year quarter. Income from continuing operations was $5.4 million, or $0.10 per diluted share, versus $7.5 million, or $0.13 per diluted share, in the prior year quarter. Absent the additional interest expense related to our interest rate swap agreements, income from continuing operations would have been $8.3 million, or $0.15 per diluted share, versus income from continuing operations of $8.6 million, or $0.15 per diluted share, in the prior year quarter.
• Blended company-operated same-store sales for the third quarter of fiscal 2009 increased 0.9 percent. Same-store sales increased 0.5 percent and 1.3 percent at Carl's Jr.(R) and Hardee's(R) company-operated restaurants, respectively.
• Blended average unit volume for the trailing-13 periods was $1,221,000 at company-operated restaurants. Average unit volumes for the trailing-13 periods increased to $1,529,000 and $982,000 at company-operated Carl's Jr. and Hardee's restaurants, respectively.
• Consolidated restaurant operating costs increased 50 basis points to 82.1 percent of company-operated restaurants revenue. Occupancy and other costs increased 130 basis points, primarily due to higher utility costs and depreciation expense increases mainly related to our remodel program at both brands. These increases more than offset a reduction in payroll and employee benefits costs (70 basis points). Food and packaging costs were 10 basis points below the prior year quarter.
• Restaurant operating costs at Carl's Jr. company-operated restaurants increased 120 basis points, compared to the prior year quarter, to 80.0 percent of company-operated restaurants revenue. The increase was primarily attributable to higher utility costs (50 basis points) and rent (30 basis points) and increased depreciation expense (40 basis points) mainly related to our ongoing remodel program. Food and packaging costs increased 20 basis points over the prior year quarter.
• Restaurant operating costs at Hardee's company-operated restaurants increased 40 basis points, compared to the prior year quarter, to 84.7 percent of company-operated restaurants revenue. An increase in asset disposal charges (60 basis points) mainly related to rebuilding two restaurants and higher depreciation expense (90 basis points) primarily related to our remodel program more than offset lower payroll and employee benefits expense (130 basis points). Food and packaging costs were 20 basis points lower than the prior year quarter.
• Consolidated revenue for the current year quarter was $336.6 million, a 4.3 percent decrease from the prior year quarter. Company-operated restaurants revenue for the current year quarter was $255.5 million, a 6.5 percent decrease from the prior year quarter, reflecting the refranchising of 118 Hardee's restaurants partially offset by the opening of 25 new company-operated restaurants over the trailing-13 periods and positive same-store sales over the prior year quarter.
• For the twelve weeks ended Nov. 3, 2008, the Company generated earnings before interest, income taxes, depreciation and amortization, facility action charges and share-based compensation expense ("Adjusted EBITDA") of $37.3 million, versus $36.7 million in the prior year quarter.
• For the forty weeks ended Nov. 3, 2008, the Company generated Adjusted EBITDA of $132.9 million, versus $129.4 million in the comparable prior year period. For the trailing-13 periods ended Nov. 3, 2008, the Company generated Adjusted EBITDA of $168.5 million.
• Fully diluted shares outstanding for both the twelve and forty weeks ended Nov. 3, 2008, were 54.3 million.

Executive Commentary

Andrew F. Puzder, president and chief executive officer, said:

"Net income for the third quarter of fiscal 2009 was $5.4 million, or $0.10 per diluted share versus $6.2 million, or $0.11 per diluted share in the prior year quarter. Income from continuing operations in the prior year quarter was $7.5 million, or $0.13 per diluted share. The decrease in net income and diluted earnings per share is in part attributable to the impact of refranchising 118 Hardee's restaurants over the past year and a $3.1 million increase in interest expense resulting from higher mark-to-market adjustments related to our interest rate swap agreements."

"The ongoing financial crisis continues to place unprecedented pressure on consumers. Despite this challenging environment, we were able to increase blended same-store sales 0.9 percent during the third quarter on top of a 1.7 percent increase in the prior year quarter. On a consolidated basis, restaurant-level operating expenses increased 50 basis points versus the prior year quarter due primarily to higher utility costs and increased depreciation expense related to our ongoing remodel program. The menu initiatives and price increases we have taken over the past year allowed us to keep food costs relatively flat during the third quarter. General and administrative expense decreased by $1.5 million and remained flat as a percentage of revenue despite a $15 million reduction in total revenue primarily attributable to our Hardee's refranchising program."

"We also continued to execute our Capital Plan without incurring additional debt. We opened eight new company-operated restaurants during third quarter, including our first two Carl's Jr. restaurants in San Antonio, TX. Our franchisees opened 14 domestic and 10 international units, and currently operate 310 units internationally. For the fiscal year to date, we completed 50 Carl's Jr. and 80 Hardee's remodels and 13 Green Burrito and 26 Red Burrito dual-branded conversions."

"Since the beginning of the year, we have reduced our bank and other long-term debt by $32.6 million. At the end of third quarter, our total debt to Adjusted EBITDA ratio ("leverage ratio") was 2.1, well below the 3.0 maximum leverage ratio allowed by the covenants contained in our credit facility. Our credit facility is in place until March 2012 with very favorable terms, including minimal required principal payments on our term loan through 2011 and interest rates on our term loan and revolver that could not be obtained in today's credit markets. As of the end of third quarter, we had nearly $100 million available under the revolving portion of our credit facility."

"With respect to our individual brands:

Carl's Jr.

"Same-store sales at company-operated Carl's Jr. restaurants increased 0.5 percent during the third quarter. On a two-year cumulative basis, same-store sales at Carl's Jr. were up 1.2 percent for the third quarter. Year to date through the end of third quarter, same-store sales at Carl's Jr. have increased 2.9 percent. Revenues at company-operated Carl's Jr. restaurants increased $4.5 million, or 3.3 percent, over the prior year quarter due to the same-store sales gains and the addition of 18 company-operated restaurants over the past year," continued Puzder. "Carl's Jr. promoted the Prime Rib Burger and Guacamole Bacon burgers during the quarter. Carl's Jr. also featured the latest flavor of its Hand-Scooped Ice Cream Shakes and Malts(TM) - Banana Cream Pie. Average unit volume at company-operated Carl's Jr. restaurants increased to $1,529,000, a $36,000 increase since the end of fiscal 2008, and an all-time high for the brand."

"Restaurant operating costs at company-operated Carl's Jr. restaurants increased by 120 basis points as compared with the prior year quarter, to 80.0 percent of company-operated restaurants revenue. Occupancy and other expense increased 70 basis points due primarily to higher depreciation expense related to our ongoing remodel program and higher rent expense due primarily to consumer price index adjustments. Food and packaging costs increased 20 basis points over the prior year quarter, due to higher prices for commodities including beef, cheese, potatoes and oil."

Hardee's

"Same-store sales at company-operated Hardee's restaurants increased 1.3 percent during the third quarter. On a two-year cumulative basis, Hardee's same-store sales were up 4.0 percent for the third quarter. Year to date through the end of third quarter, same-store sales at Hardee's have increased 1.1 percent," added Puzder. "Revenue from company-operated Hardee's restaurants decreased $22.2 million, or 16.2 percent, from the prior year quarter due primarily to the refranchising of 118 Hardee's restaurants partially offset by the opening of seven new company-operated restaurants over the trailing-13 periods and positive same-store sales over the prior year quarter. During third quarter, Hardee's introduced Little Thickburgers - a quarter-pound version of the traditional one-third pound, 100 percent Black Angus, charbroiled beef patty. Hardee's also debuted the Pork Chop 'N' Gravy Biscuit during the breakfast daypart. Hardee's company-operated restaurants average unit volume increased to $982,000, a $28,000 increase since the end of fiscal 2008 and the highest average unit volume for the brand as far back as we can check."

"Hardee's restaurant operating costs at its company-operated restaurants increased 40 basis points as compared with the prior year quarter, to 84.7 percent of company-operated restaurants revenue. Occupancy and other expense increased 190 basis points due to our ongoing remodel program as well as certain asset disposal charges related to rebuilding two restaurants. This more than offset lower payroll and employee benefits costs of 130 basis points. Food and packaging costs were 20 basis points lower than the prior year quarter."

"We continue to believe that our brands are well-positioned to endure the current macroeconomic situation. Going forward, the combination of our premium product strategy, cutting-edge advertising, and remodeled and dual-branded restaurants should allow us to continue growing our average unit volumes as well as maintain, if not improve, our restaurant operating costs as demonstrated through the first three quarters of this year. We will also continue to aggressively manage our costs at the corporate level as well," Puzder concluded.

As of the end of its fiscal 2009 third quarter, CKE Restaurants, Inc., through its subsidiaries, had a total of 3,110 franchised, licensed or company-operated restaurants in 42 states and in 14 countries, including 1,185 Carl's Jr. restaurants and 1,912 Hardee's restaurants.

Conference Call

The Company will host a conference call and webcast on Dec. 11, 2008, at 9:00 a.m. (EST) / 6:00 a.m. (PST) to review these results and discuss the Company's growth plans. The Company invites investors to listen to the live webcast of the conference call at www.ckr.com under "Investors."

SEC Filings

The Company's filings with the SEC are available to investors at 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 3,  November 5,  November 3, 2008  November 5, 2007

                  2008         2007



Revenue:



Company-operated  $ 255,545    $ 273,319    $ 880,858         $ 941,639

restaurants



Franchised and

licensed            81,050       78,303       274,398           254,876

restaurants and

other



Total revenue       336,595      351,622      1,155,256         1,196,515



Operating costs

and expenses:



Restaurant

operating costs:



Food and            76,785       82,298       262,214           279,761

packaging



Payroll and

other employee      71,237       78,261       250,349           273,901

benefits



Occupancy and       61,841       62,459       199,687           207,706

other



Total restaurant    209,863      223,018      712,250           761,368

operating costs



Franchised and

licensed            61,474       60,373       210,131           197,685

restaurants and

other



Advertising         15,105       15,829       51,902            55,861



General and         31,156       32,636       108,037           110,278

administrative



Facility action     1,242        287          2,666             (1,513    )

charges, net



Total operating

costs and           318,840      332,143      1,084,986         1,123,679

expenses



Operating income    17,755       19,479       70,270            72,836



Interest expense    (9,363  )    (7,686  )    (16,330   )       (17,442   )



Other income,       769          1,079        2,290             3,291

net



Income before

income taxes and    9,161        12,872       56,230            58,685

discontinued

operations



Income tax          3,773        5,388        21,882            23,851

expense



Income from

continuing          5,388        7,484        34,348            34,834

operations



Loss from

discontinued

operations (net

of income tax

(benefit)

expense of $        --           (1,282  )    --                (3,856    )

(500) and $1,841

for the twelve

and forty weeks

ended November

5, 2007,

respectively)



Net income        $ 5,388      $ 6,202      $ 34,348          $ 30,978



Basic income per

common share:



Continuing        $ 0.10       $ 0.13       $ 0.66            $ 0.57

operations



Discontinued        --           (0.02   )    --                (0.06     )

operations



Net income        $ 0.10       $ 0.11       $ 0.66            $ 0.51



Diluted income

per common share

(1):



Continuing        $ 0.10       $ 0.13       $ 0.64            $ 0.54

operations



Discontinued        --           (0.02   )    --                (0.06     )

operations



Net income        $ 0.10       $ 0.11       $ 0.64            $ 0.48



Dividends per     $ 0.06       $ 0.06       $ 0.18            $ 0.18

common share



Weighted-average

common shares

outstanding:



Basic               52,574       55,908       51,898            61,312



Dilutive effect

of stock

options, 2023       1,684        3,056        2,383             3,238

Convertible

Notes and

restricted stock



Diluted             54,258       58,964       54,281            64,550



(1) The interest expense 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 $56 and $292 for the twelve and forty weeks ended

November 3, 2008, respectively, and was $102 and $341 for the twelve and forty

weeks ended November 5, 2007, respectively.









CKE RESTAURANTS, INC. AND SUBSIDIARIES



CONDENSED PRESENTATION OF NON-GAAP MEASUREMENTS



(In thousands)



                          Twelve                   Twelve



                          Weeks Ended November 3,  Weeks Ended November 5, 2007

                          2008



Net income                $ 5,388                  $ 6,202



Interest expense            9,363                    7,686



Income tax expense          3,773                    4,888



Depreciation and            14,835                   14,769

amortization



Facility action charges,    1,242                    287

net



Share-based compensation    2,658                    2,850

expense



Adjusted EBITDA           $ 37,259                 $ 36,682









                  Forty             Forty                    Trailing-13



                  Weeks Ended       Weeks Ended November 5,  Periods Ended

                  November 3, 2008  2007                     November 3, 2008



Net income        $ 34,348          $ 30,978                 $ 34,446



Interest expense    16,330            17,464                   31,921



Income tax          21,882            25,692                   22,802

expense



Depreciation and    48,141            49,679                   62,564

amortization



Facility action     2,666             (2,218  )                3,602

charges, net



Share-based

compensation        9,524             7,755                    13,147

expense



Adjusted EBITDA   $ 132,891         $ 129,350                $ 168,482

Source: CKE Restaurants, Inc.

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