Industry News | April 24, 2001
CKE Announces 4Q, Year-End Results
"Without a doubt, fiscal 2001 was a very challenging year,'' said Andrew Puzder, CKE's president and chief executive officer. "When I took over as CEO and president in September 2000, I knew that we had three tremendous quick service brands, but that we had to successfully execute several major initiatives to return to profitability. Those initiatives include the turn-around of Hardee's operations, the need to significantly reduce our leverage and the need to reduce our expenses. Although not reflected in our year-end numbers, there are efforts underway that we believe will help us complete these initiatives and return to profitability.
"In November 2000, we introduced a new operations improvement program at Hardee's, 'Operations QSC—Quality, Service, Cleanliness,' and we have been encouraged by the progress made to-date. We have launched our 'Come on Home' advertising campaign at Hardee's and are introducing nostalgic products from Hardee's past.
"We sold approximately 400 Hardee's and Carl's Jr. stores and generated $137.8 million of proceeds to pay down the bank facility. Today, we have approximately $135.0 million outstanding, down from almost $300.0 million a little over a year ago. With the sale of Taco Bueno, we will be able to reduce our senior credit facility borrowings to substantially below $100 million. We intend to refinance the facility by the end of the fiscal year.
"As we sell stores, we are focused on reducing general and administrative expenses and streamlining corporate business processes to achieve additional savings. "As shown in the pro-forma analysis on page one of this press release, the majority of our net loss for the fourth quarter was due to the charges associated with our need to close down additional stores, principally Hardees's, and a one-time charge to write-off our tax asset. We carefully analyzed stores whose prospects for future profit were minimal and decided to close those stores to maximize our operating profitability on a going-forward basis.
"Carl's Jr. is performing extremely well, but there is no silver bullet to turn around Hardee's. We believe our debt reduction strategy and focus on rebuilding the Hardee's brand, each of which will take time to fully implement, will pave the way for our return to profitability.''
Comments regarding the fourth quarter results are as follows:
• During the fourth quarter of fiscal 2001, the Company recorded a special pre-tax net charge of $97.0 million and a tax valuation reserve of $70.2 million. The tax valuation reserve relates to the company no longer recording a tax asset for net operating loss carry forwards. Recording the tax valuation reserve had the effect of reducing the tax benefit of the operating loss shown in the statement of operations. The special charge, which was primarily non-cash in nature, consisted of (a) a $19.1 million store closure reserve for approximately 80 Hardee's and approximately 20 Carl's Jr. restaurants that the Company has closed or plans to close, (b) an impairment charge of $76.8 million for certain restaurants that that the Company will close or for restaurants that the Company plans to continue to operate but for which the net book value is not supported by future estimated cash flows, (c) a $3.7 million strengthening to the Carl's Jr. self insurance reserves, (d) a credit for a net $11.3 million gain on the sale of restaurants sold to franchisees and (e) a loss of $8.7 million on the sale of Taco Bueno.
• During the fourth quarter of fiscal 2000, the Company recorded a special pre-tax net charge of $80.3 million. The charge, which was primarily non-cash in nature, consisted of (a) $42.0 million for a store-closure reserve and asset impairment charge for approximately 105 Hardee's, (b) an impairment charge of $37.3 million to write-down the Company's various long-term investments in other restaurant concepts to fair market value, (c) $2.1 million of restructuring charges in connection with consolidating certain administrative functions from Rocky Mount, N.C. to Anaheim, CA, (d) writing-off $3.6 million of deferred financing costs as of result of a commitment decrease in the Company's senior credit facility, (e) $2.6 million of Y2K expenses associated with restaurant computer systems, (f) writing- off $6.6 million in charges related to software that will not be implemented, (g) an additional $1.7 million in vacation expense in connection with a change in vacation policy, (h) writing-off $0.9 million in site costs for restaurants that will not be developed (i) a gain on the sale of Carl's Jr. and Hardee's restaurants of $19.5 million and (j) other miscellaneous adjustments of $3.0 million.
• Revenues for the 12 weeks ended January 29, 2001 decreased $121.3 million, or 25.5 percent, to $354.2 million as compared with the 13-week prior-year fourth quarter. Carl's Jr. represented $17.3 million of the revenue decrease; Taco Bueno's revenues decreased by $0.9 million as compared with the prior-year quarter; and Hardee's revenues decreased $103.0 million. These decreases are primarily due to the sale of approximately 400 Company operated stores to franchisees as well as the closure of approximately 120 company- operated stores. While revenues from company operated stores are down $130.0 million, franchised and licensed restaurant revenues are up $8.7 million.
• Carl's Jr. restaurant level margins, excluding store closure and asset impairment charges of $10.9 million associated with approximately 20 stores primarily in Oklahoma and the strengthening of self- insurance reserves, were 19.2 percent, compared to the prior year margins of 20.3 percent or down 1.1 percent. Hardee's Company- operated restaurant-level margins, excluding the $85.0 million store closure and asset impairment charges, were 2.8 percent in the fourth quarter of fiscal 2001 as compared with 8.6 percent in the prior year, excluding similar charges. Taco Bueno's restaurant-level margins were 18.6 percent, down 2.7 percent from the prior year. Overall, labor costs were affected by increased hourly wages resulting from the tightening job market and a concerted effort to increase staffing level to provide better guest service. Occupancy and other operating costs increased for Hardee's as a result of additional depreciation expense associated with the "Star Hardee's" remodel program and declining average unit volumes. At Carl's Jr., occupancy and other operating expenses increased primarily as a result of additional depreciation expense on the new units built during fiscal 2000 and increased repair and maintenance expense. Finally, the decline in Hardee's same store sales contributed to the decline in its restaurant margins.
• Company-operated Carl's Jr. same-store sales remained relatively flat for the fourth quarter. Company-operated Hardee's same-store sales were down 10.7 percent. Same-store sales at Taco Bueno decreased 2.0 percent for the quarter.
Comments regarding the fiscal year results are as follows:
• During the current year, the Company recorded a pre-tax special charge of $151.1 million and a tax valuation reserve of $70.2 million. These special charge consisted of (a) store closure and asset impairment charges of $98.3 million, (b) strengthening of self insurance reserves of $6.4 million, (c) net losses of $37.7 million on sales of restaurants to franchisees in fiscal 2001 and (d) a loss of $8.7 million on the sale of Taco Bueno. For the prior fiscal year, the special charge was recorded in the fourth quarter as discussed above.
• Revenues for the 52 weeks decreased to $1.785 billion, down $205.5 million, or 10.3 percent, from the prior year 53-week period. Revenues increased $19.0 million, or 2.7 percent, for the Carl's Jr. chain. Hardee's revenues decreased $229.3 million, or 24.4 percent. Revenues for the Taco Bueno chain increased $5.4 million, or 5.8 percent, as compared with the prior year. While revenues from company operated restaurants decreased $245.2 million, revenue from franchised and licensed restaurants increased $39.7 million.
• Carl's Jr. restaurant level margins, excluding store closure and asset impairment charges and increases to self-insurance reserves, were 20.4 percent, compared to the prior year margins of 22.8 percent or down 2.4 percent. Hardee's restaurant-level margins, excluding the store closure and asset impairment charges, were 7.6 percent. Restaurant-level margins at Taco Bueno were 21.2 percent, down 3.3 percent from 24.5 percent in the prior year-to-date period, excluding similar adjustments made in the prior year.
• Company-operated Carl's Jr. same-store sales were up 1.8 percent. Company-operated Hardee's same-store sales were down 7.6 percent. Same-store sales at Taco Bueno decreased 1.8 percent for the quarter.
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