CKE Restaurants(R) Announces Fourth Quarter And Full Year Fiscal 2010 Results

CARPINTERIA, Calif., Mar 24, 2010 (BUSINESS WIRE) -- CKE Restaurants, Inc. (NYSE:CKR) announced today fourth quarter and fiscal year-end results.


Highlights
Fourth Quarter Fiscal Year
($ in millions, except per share amounts) FY 2010 FY 2009 FY 2010 FY 2009
Company-Operated Blended Same-Store Sales -6.0 % +0.3 % -3.9 % +1.7 %
Company-Operated Restaurant-Level Margin (1) 16.2 % 18.0 % 18.6 % 18.9 %
Total Revenue $ 311.7 $ 327.5 $ 1,418.7 $ 1,482.7
Operating Income $ 11.4 $ 13.8 $ 79.5 $ 84.0
Net Income $ 15.4 $ 2.6 $ 48.2 $ 37.0
Diluted EPS $ 0.28 $ 0.05 $ 0.87 $ 0.68
Adjusted EBITDA (2) $ 32.7 $ 34.4 $ 166.3 $ 167.3
Diluted EPS, excluding mark-to-market adjustments(3) $ 0.30 $ 0.14



  1. We define company-operated restaurant-level margin as restaurant-level income divided by company-operated restaurants revenue. Restaurant-level income is company-operated restaurants revenue less restaurant operating costs, which are the expenses incurred directly by our company-operated restaurants in generating revenues and do not include advertising costs, general and administrative expenses or facility action charges.
  2. Excludes interest expense, depreciation and amortization, facility action charges, share-based compensation expense, and income tax expense.
  3. Diluted earnings per share, excluding mark-to-market adjustments (and related income tax effect at our marginal tax rate) related to our interest rate swap agreements.


Executive Statement

"Blended same-store sales decreased 3.9% for our fiscal year and decreased 6.0% in the fourth fiscal quarter with poor end of year weather impacting our results. Even though we saw weakness in the overall economy, high unemployment rates and deep-discount burger wars, I'm proud to say that for the year we maintained market share, our premium branding and remarkably constant levels of profitability," said Andrew F. Puzder, chief executive officer. "We will stay on course as we enter Fiscal 2011 with our focus on big, juicy premium burgers for hungry guys and as we grow our company stores and quickly expand our franchisee presence. To grow same-store sales we will continue with our aggressive new product launches, cutting edge advertising, dual branding and remodeling; all the while looking for ways to increase profitability."

Fourth Quarter Financial Details

  • Company-operated restaurant-level margin decreased 180 basis points for the quarter to 16.2% of company-operated restaurants revenue, in part as a result of a 100 basis point increase in depreciation costs, primarily associated with recent remodeling activities. Labor costs also increased due to higher minimum wages in some states and the impact of sales deleveraging.
  • Operating income for the quarter was $11.4 million, or 3.7% of total revenue compared to $13.8 million, or 4.2% of total revenue in the same quarter of the prior year.
  • Pre-tax income excluding mark-to-market adjustments was $9.8 million for the quarter compared to $10.6 million in the prior year quarter.
  • The Company's Adjusted EBITDA for the quarter remained strong at $32.7 million, or 10.5% of total revenue compared to $34.4 million, or 10.5% of total revenue in the prior year quarter.
  • Net income for the quarter includes a $9.9 million tax benefit related to a reduction in our valuation allowance for deferred income tax assets.
  • Total quarterly revenue was $311.7 million, a decline of 4.8%.


Fiscal 2010 Operational and Financial Details

  • Company-operated restaurant-level margin for the year decreased 30 basis points to 18.6% of company-operated restaurants revenue as a 90 basis point increase in depreciation costs, primarily associated with recent remodeling activities and higher labor costs were, partially offset by favorable commodity costs.
  • Operating income was $79.5 million, or 5.6% of total revenue compared to $84.0 million, or 5.7% of revenue in the prior year.
  • Pre-tax income excluding mark-to-market adjustments was $70.0 million for the year compared to $67.5 million in the prior year quarter.
  • The Company's Adjusted EBITDA for the year remained strong at $166.3 million or 11.7% of total revenue, compared to prior year of $167.3 million, or 11.3% of total revenue.
  • Net income for the year includes a $9.9 million tax benefit related to a reduction in our valuation allowance for deferred income tax assets.
  • Total revenue for the year was $1,418.7 million, a decline of 4.3%.
  • The Company remodeled 55 Carl's Jr. and 102 Hardee's restaurants and completed a combined 42 dual-branded Green Burrito(R) and Red Burrito(R) restaurant conversions.
  • Despite capital expenditures required for the ongoing remodeling program, the Company reduced its bank and other long-term debt for the year by $36.3 million to $278.5 million. As of January 25, 2010, the Company's leverage ratio was 2.10.
  • CKE increased system-wide unit count by 25 restaurants for a consolidated total of 3,141.



Fourth Quarter Concept Details
Carl's Jr. Hardee's Blended
Q4 Q4 Q4 Q4 Q4 Q4
FY 2010 FY 2009 FY 2010 FY 2009 FY 2010 FY 2009
Company-Operated Same-Store Sales -8.7 % -0.6 % -2.5 % + 1.5 % -6.0 % + 0.3 %
Company-Operated Restaurant-Level Margin 17.3 % 21.0 % 14.8 % 14.0 % 16.2 % 18.0 %
Company-Operated Average Unit $ 1,438 $ 1,528 $ 1,002 $ 993 $ 1,206 $ 1,232
Volume-Trailing 13 Periods (000)


  • Carl's Jr. company-operated same-store sales for the quarter declined 8.7% as a result of the particularly weak economy in California and poor weather conditions. On a two-year basis, same-store sales decreased 9.3%. Restaurant-level margin declined to 17.3% compared to the prior year quarter at 21.0% of company-operated restaurants revenue. Labor costs increased 110 basis points primarily due to the deleveraging impact of the decrease in same-store sales and the relatively fixed nature of restaurant management costs. Depreciation also increased 80 basis points related to the ongoing remodeling program and equipment upgrades. Other expense increases included the impact of sales deleveraging and shifts in menu mix on fixed costs.
  • Hardee's company-operated same-store sales for the quarter decreased 2.5% also due to weak economic conditions. On a two-year basis, same-store sales decreased 1.0%. Company-operated restaurant-level margin increased to 14.8% of company-operated restaurants revenue compared to 14.0% in the prior year primarily due to lower commodity costs for beef, cheese, oil and flour, lower utilities and decreased general liability insurance costs. Partially offsetting these favorable expenses was a 110 basis point increase in depreciation costs, primarily related to recent remodeling activity and equipment upgrades and increases in labor costs associated with the federal minimum wage rate hike and sales deleveraging.


Fiscal Year 2010 Concept Details
Carl's Jr. Hardee's Blended
FY 2010 FY 2009 FY 2010 FY 2009 FY 2010 FY 2009
Company-Operated Same-Store Sales -6.2 % +2.1 % -0.9 % + 1.2 % -3.9 % + 1.7 %
Company-Operated Restaurant-Level Margin 20.0 % 21.2 % 16.8 % 16.1 % 18.6 % 18.9 %


  • Carl's Jr. company-operated same-store sales for the year declined 6.2% as a result of the particularly weak economy in California and poor weather conditions near year end. On a two-year basis, same-store sales decreased 4.1%. Restaurant-level margin declined to 20.0% compared to the prior year at 21.2% of company-operated restaurants revenue. Depreciation increased 70 basis points primarily related to the ongoing remodeling program. Labor costs increased 60 basis points primarily due to the deleveraging impact of the decrease in same-store sales and the relatively fixed nature of restaurant management costs. Lower commodity costs for beef, cheese, and oil products and reduced distribution costs related to lower fuel and administrative costs partially offset increases in other operating costs resulting from sales deleveraging.
  • Hardee's company-operated same-store sales for the year decreased 0.9% also due to weak economic conditions. On a two-year basis, same-store sales increased 0.3%. Company-operated restaurant-level margin increased to 16.8% of company-operated restaurants revenue compared to 16.1% in the prior year despite a 110 basis point increase in depreciation costs, primarily related to recent remodeling activity. Lower commodity costs for beef, cheese, oil and flour products more than offset the increase in depreciation costs.


Conference Call

The Company will host a conference call and webcast on March 25, 2010, at 6:00 a.m. PST (9:00 a.m. EST) 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." The dial in information is (617) 224-4324. The access code is 39478386.

Fiscal Year

We operate on a retail accounting calendar. Our fiscal year is comprised of 13 four-week accounting periods and ends on the last Monday in January each year. The first quarter of our fiscal year has four periods, or 16 weeks. All other quarters have three periods, or 12 weeks. For clarity of presentation, we generally label all years presented as if the fiscal year ended January 31. The fiscal year ended January 25, 2010 is referred to herein as fiscal 2010 or the fiscal year ended January 31, 2010. The fiscal year ended January 26, 2009 is referred to herein as fiscal 2009 or the fiscal year ended January 31, 2009.

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

In various places throughout this press release, we use certain financial measures which are not prepared in accordance with accounting principles generally accepted in the United States ("Non-GAAP"), which we believe provide valuable information to our stockholders. Examples of such Non-GAAP financial measures include Adjusted EBITDA, which is a measure used by our lenders under our senior credit facility to evaluate our ability to service debt and fund capital expenditures; company-operated restaurant-level margin, which is a measure of restaurant profitability; franchise contribution, which is a measure of our operating results related to franchised and licensed restaurants; and diluted income per common share and pretax income, excluding mark-to-market adjustments, which are financial metrics used by management to measure our performance.

CKE Restaurants, Inc.

Headquartered in Carpinteria, Calif., CKE Restaurants, Inc. is publicly traded on the New York Stock Exchange under the symbol "CKR." As of the end of fiscal 2010, CKE Restaurants, Inc., through its subsidiaries, had a total of 3,141 franchised, licensed or company-operated restaurants in 42 states and in 14 countries, including 1,224 Carl's Jr. restaurants and 1,905 Hardee's restaurants.

Safe Harbor Disclosure

Matters discussed in this press release contain forward-looking statements relating to the Company's strategic initiatives to grow same-store sales, expand its franchisee presence and increase profitability, which are based on management's current beliefs and assumptions. Such statements are subject to risks and uncertainties that are often difficult to predict and beyond the Company's control. Factors that could cause the Company's results to differ materially from those described include, but are not limited to, the Company's ability to compete with other restaurants, delicatessens, supermarkets and convenience stores for customers, employees, restaurant locations and franchisees; the effect of restrictive covenants in the Company's credit facility on the Company's business; changes in consumer preferences, perceptions and spending patterns; the ability of the Company's key suppliers to continue to deliver quality products to the Company at moderate prices; the Company's ability to successfully enter new markets and complete remodels of existing restaurants; changes in economic conditions which may affect the Company's business and stock price; the Company's ability to attract and retain key personnel; the Company's franchisees' willingness to participate in the Company's strategy; the operational and financial success of the Company's franchisees; changes in the price or availability of commodities; the effect of the media's reports regarding food-borne illnesses, food tampering and other health-related issues on the Company's reputation and its ability to obtain products; the seasonality of the Company's operations; the Company's ability to hire and retain qualified personnel and the effect of higher labor costs; increased insurance and/or self-insurance costs; the Company's ability to comply with existing and future health, employment, environmental and other government regulations; the completion and timing of the proposed merger; 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
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 2010 AND 2009
(In thousands, except par values)
2010 2009
ASSETS
Current assets:
Cash and cash equivalents $ 18,246 $ 17,869
Accounts receivable, net 35,016 40,738
Related party trade receivables 5,037 4,923
Inventories, net 24,692 24,215
Prepaid expenses 13,723 13,445
Assets held for sale 500 805
Advertising fund assets, restricted 18,295 16,340
Deferred income tax assets, net 26,517 20,781
Other current assets 3,829 1,843
Total current assets 145,855 140,959
Notes receivable, net 1,075 3,259
Property and equipment, net 568,334 543,770
Property under capital leases, net 32,579 23,403
Deferred income tax assets, net 40,299 57,832
Goodwill 24,589 23,688
Intangible assets, net 2,317 2,508
Other assets, net 8,495 9,268
Total assets $ 823,543 $ 804,687
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of bank indebtedness and other long-term debt $ 12,262 $ 4,341
Current portion of capital lease obligations 7,445 6,389
Accounts payable 65,656 60,903
Advertising fund liabilities 18,295 16,340
Other current liabilities 95,605 91,765
Total current liabilities 199,263 179,738
Bank indebtedness and other long-term debt, less current portion 266,202 310,447
Capital lease obligations, less current portion 43,099 36,273
Other long-term liabilities 78,804 83,953
Total liabilities 587,368 610,411
Stockholders' equity:
Preferred stock, $.01 par value; 5,000 shares authorized; none -- --
issued or outstanding
Series A Junior Participating Preferred stock, $.01 par value; -- --
none and 1,500 shares authorized as of January 31, 2010 and 2009,
respectively; none issued or outstanding as of January 31, 2010
and 2009
Common stock, $.01 par value; authorized 100,000 shares; 55,291 553 546
shares issued and outstanding as of January 31, 2010 and 54,653
shares issued and outstanding as of January 31, 2009
Additional paid-in capital 282,904 276,068
Accumulated deficit (47,282 ) (82,338 )
Total stockholders' equity 236,175 194,276
Total liabilities and stockholders' equity $ 823,543 $ 804,687
CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Fiscal Quarters Ended Fiscal Years Ended
January 31, January 31, January 31, January 31,
2010 2009 2010 2009
Revenue:
Company-operated restaurants $ 236,820 $ 250,454 $ 1,084,474 $ 1,131,312
Franchised and licensed restaurants and other 74,925 77,000 334,259 351,398
Total revenue 311,745 327,454 1,418,733 1,482,710
Operating costs and expenses:
Restaurant operating costs:
Food and packaging 68,417 73,493 310,483 335,707
Payroll and other employee benefits 71,429 72,587 312,571 322,936
Occupancy and other 58,600 59,308 260,061 258,995
Total restaurant operating costs 198,446 205,388 883,115 917,638
Franchised and licensed restaurants and other 57,170 59,568 253,850 269,699
Advertising 12,992 15,009 64,443 66,911
General and administrative 30,074 32,266 133,135 140,303
Facility action charges, net 1,673 1,473 4,695 4,139
Total operating costs and expenses 300,355 313,704 1,339,238 1,398,690
Operating income 11,390 13,750 79,495 84,020
Interest expense (4,420 ) (12,279 ) (19,254 ) (28,609 )
Other income, net 944 788 2,935 3,078
Income before income taxes 7,914 2,259 63,176 58,489
Income tax (benefit) expense (7,482 ) (349 ) 14,978 21,533
Net income $ 15,396 $ 2,608 $ 48,198 $ 36,956
Basic income per common share $ 0.28 $ 0.05 $ 0.88 $ 0.69
Diluted income per common share $ 0.28 $ 0.05 $ 0.87 $ 0.68
Dividends per common share $ 0.06 $ 0.06 $ 0.24 $ 0.24
CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED PRESENTATION OF NON-GAAP MEASUREMENTS
(In thousands)
Reconciliation of net income to Adjusted EBITDA:
Fiscal Quarter Ended Fiscal Year Ended
January 31, 2010 January 31, 2009 January 31, 2010 January 31, 2009
Net income $ 15,396 $ 2,608 $ 48,198 $ 36,956
Interest expense 4,420 12,279 19,254 28,609
Income tax (benefit) expense (7,482 ) (349 ) 14,978 21,533
Depreciation and amortization 16,747 15,356 71,064 63,497
Facility action charges, net 1,673 1,473 4,695 4,139
Share-based compensation expense 1,914 3,010 8,156 12,534
Adjusted EBITDA $ 32,668 $ 34,377 $ 166,345 $ 167,268
Reconciliation of income before income taxes to pretax income,
excluding mark-to-market adjustments related to our interest rate
swap agreements:
Fiscal Quarter Ended Fiscal Year Ended
January 31, 2010 January 31, 2009 January 31, 2010 January 31, 2009
Income before income taxes $ 7,914 $ 2,259 $ 63,176 $ 58,489
Mark-to-market loss 1,855 8,353 6,803 9,010
Pretax income, excluding mark-to-market adjustments $ 9,769 $ 10,612 $ 69,979 $ 67,499
Reconciliation of net income to net income for computation of
diluted income per common share, excluding mark-to-market
adjustments, and weighted average shares for computation of diluted
income per common share:
Fiscal Quarter Ended Fiscal Year Ended
January 31, 2010 January 31, 2009 January 31, 2010 January 31, 2009
Net income $ 15,396 $ 2,608 $ 48,198 $ 36,956
Interest and amortization costs for 2023 Convertible Notes, net of -- -- -- 292
related tax effect
Mark-to-market loss 1,855 8,353 6,803 9,010
Tax effect of mark-to-market loss (710 ) (3,191 ) (2,606 ) (3,442 )
Distributed and undistributed income attributable to unvested (355 ) (149 ) (916 ) (733 )
restricted stock awards
Income for computation of diluted income per common share, excluding $ 16,186 $ 7,621 $ 51,479 $ 42,083
mark-to-market adjustments
Weighted-average common shares for computation of diluted income 54,366 53,850 54,211 54,079
per share


SOURCE: CKE Restaurants, Inc.


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