Results for the quarter are as follows:
During the fourth quarter of fiscal 2000, the Company recorded pre-tax charges of $80.3 million. The charges, which were primarily non-cash in nature, consisted of: (a) establishing a $42.0 million store-closure reserve for approximately 105 Hardee's restaurants that the Company plans to close within the next 12 months; (b) recording an impairment charge and equity losses of $37.3 million to write-down the Company's various long-term investments in other restaurant concepts to fair market value; (c) recording $2.1 million of restructuring charges in connection with consolidating certain administrative functions from Rocky Mount, N.C. to Anaheim, Calif.; (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) recording $2.6 million of Y2K expenses associated with restaurant computer systems; (f) writing off $6.6 million in capitalized software development that will not be utilized; (g) recording an additional $1.7 million in vacation expense in connection with a change in vacation policy; (h) recording a gain on the sale of Carl's Jr. and Hardee's restaurants of $19.5 million; and (i) other miscellaneous adjustments of $3.9 million.
Year-to-date results are as follows:
"We are deeply disappointed with our overall results for the quarter and the fiscal year," said Tom Thompson, CKE's president and chief executive officer. "Increasing sales at Hardee's has been a much bigger challenge than we had anticipated, and without those sales there is a substantial erosion of profits with such a large base of Company-operated restaurants.
"We continue to believe that the "Star" Hardee's remodel program is a vital part of Hardee's revitalization and we continue to see improvement in revenues after a remodel is completed. While we have made great strides by completing 387 remodels this year —on the high end of our goal of 300 to 400—we clearly have not yet covered enough ground to turn sales around."
There are a total of 491 Company restaurants and 148 franchised restaurants remodeled to date, representing 23 percent of the system. CKE made significant progress with its previously announced plan to sell restaurants to new and existing franchisees. In six separate transactions, the Company sold 24 Carl's Jr. restaurants to franchisees during the year for approximately $18.3 million and a gain of $15.4 million, and 61 Hardee's units for approximately $18.5 million and a gain of $4.1 million.
"We have accelerated our asset sale program and shifted the strategy to sell fewer Carl's Jrs. and more Hardee's," said Thompson. "We are targeting the sale of up to 500 additional Hardee's restaurants in fiscal 2001, with approximately 150 targeted over the next 90 days, which will generate additional proceeds of approximately $50 million. The balance of the units will be sold over the remainder of the year, which will generate approximately $200 million in proceeds. This strategy will allow us to get more quality owner-operators on board to help us turn around those restaurants, generate cash to pay down debt, and focus on running the balance of our system with a more manageable number of Company restaurants. While we are confident in the initiatives outlined, we are working with investment bankers on evaluating strategic alternatives regarding our Hardee's brand."
The Company is enthusiastic about two new advertising campaigns launched last month. Hardee's new campaign features celebrity entertainers Smokey Robinson and Vonda Shepherd, Boyz II Men, Lou Bega and the country trio Lace, all singing endorsements of Hardee's breakfast and burgers. The ads showcase the changes at Hardee's, particularly charbroiling. Carl's Jr.'s new advertising strategy will incorporate two independent campaigns focusing on the chain's mouthwatering burgers and sandwiches. To a broad customer segment the selling line is, "Don't Bother Me. I'm Eating."
The companion campaign, which is geared toward men 18 to 34, will run simultaneously and be on air in the next few weeks. Those spots feature the tagline, "Without us some guys would starve." "We are feeling some positive momentum at Carl's Jr.," Thompson said. "After a few down quarters, same-store sales in the fourth quarter were up 0.6 percent and transactions up 4.2 percent. We opened 15 new Company restaurants during the quarter for a total of 49 for the year."
Carl's Jr. franchisees also opened 29 new restaurants in fiscal 2000. Hardee's new unit development also is a source of encouragement for the Company. Thirty-five new franchise restaurants opened in fiscal 2000 as well as four Company restaurants, which are experiencing average unit volumes of $1 million on an annualized basis.
The Company's Taco Bueno chain continues to excel, celebrating its fifth consecutive year and 19th consecutive quarter of same-store sales growth. Bueno's highlights include opening six new restaurants in the fourth quarter and 12 new locations during the past 12 months, and completing year two of its remodel program. Additionally, the chain saw its average unit volumes rise 8.5 percent for the year, to $807,000 at fiscal year end.
"While we are disappointed in last fiscal year's overall results, we are encouraged by the positive things that we see happening at each of our concepts, including new restaurant growth, innovative advertising, and ongoing image enhancements and remodels. We believe that the cumulative effect of the various strategies we have in place, particularly the asset sales program, will allow CKE to improve the Company's return on investment in the coming year."
Thompson stated. CKE Restaurants, Inc., through its subsidiaries, franchisees and licensees, operates more than 3,800 quick-service restaurants, including 934 Carl's Jr. restaurants located in 13 Western states and Mexico; 2,788 Hardee's restaurants in 37 states and 11 foreign countries; and 122 Taco Bueno restaurants in Texas and Oklahoma.
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