CKE Restaurants, Inc. on April 5 announced the results for the 13 and 53 weeks ended January 31, 2000. The fourth quarter and fiscal 2000 include one extra week of operating results. Operating results for the prior-year 52 weeks ending January 25, 1999 include 43 weeks of operations for the 557 Hardee’s restaurants acquired from Advantica Restaurant Group, Inc. (“Advantica”) on April 1, 1998. Operating results for Carl’s Jr. for the 13- and 53-week periods ended January 31, 2000 include the results of the 63 Hardee’s-to-Carl’s Jr. conversions in Oklahoma, Texas and Kansas. These restaurants were included in Hardee’s results for the corresponding prior-year periods.
Results for the quarter are as follows:
- Net loss for the 13 weeks ended January 31, 2000 was $61.8 million, or $(1.22) per share on a diluted basis, compared with net income, including the $0.5 million extraordinary gain on the early retirement of debt, of $13.5 million, or $0.26 per share on a diluted basis for the 12-week prior-year period. On a pro forma basis, after adjusting for the unusual and non-recurring items, net loss for the fourth quarter was $12.5 million, or $(0.25) per share on a diluted basis.
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.
- Revenues for the 13 weeks increased $44.1 million, or 10.2 percent, to $475.5 million as compared with the 12-week prior-year fourth quarter. Carl’s Jr. contributed $33.6 million of the revenue increase, $9.1 million, of which was due to the inclusion of the Hardee’s-to-Carl’s Jr. conversions in fiscal 2000. Taco Bueno’s revenues increased by $3.4 million as compared with the prior-year quarter. The increases in both Carl’s Jr. and Taco Bueno revenues are due to an increase in the number of restaurants open and operating in the fourth quarter of fiscal 2000 as compared with fiscal 1999 and an additional week of operating results in fiscal 2000. Hardee’s revenues increased $16.3 million, after adjusting for the transfer of the Hardee’s-to-Carl’s Jr. conversions, primarily as a result of the 13-week fourth quarter in fiscal 2000.
- Company-operated restaurant-level margins for the 13 weeks ended January 31, 2000 were 20.3 percent for Carl’s Jr., down 6.3 percent as compared with the prior year. This restaurant-level margin includes the results of the Hardee’s-to-Carl’s Jr. conversions in Oklahoma, Texas and Kansas. If these restaurants were excluded, Carl’s Jr. margins would have been 22.6 percent. Hardee’s Company-operated restaurant-level margins, excluding the $42.0 million store-closure reserve, were 8.6 percent in the fourth quarter of fiscal 2000 as compared with 15.2 percent in the prior year. Taco Bueno’s restaurant-level margins were 21.4 percent, down 0.6 percent from the prior year. Overall, higher beef and cheese commodity costs increased the Company’s food and packaging costs and labor costs were affected by increased hourly wages. Occupancy and other operating costs increased for Hardee’s as a result of additional depreciation expense associated with the “Star Hardee’s” remodel program. 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. Restaurant-level margins at Carl’s Jr. also were affected during the fourth quarter of fiscal 2000 by the new $0.99 Spicy Chicken Sandwich, which was intended to drive transactions.
- Company-operated Carl’s Jr. same-store sales increased 0.6 percent for the fourth quarter and same-store sales from the Carl’s Jr. franchise system were positive 3.6 percent, for an overall systemwide increase of 1.5 percent. Company-operated Hardee’s same-store sales were down 4.9 percent. Hardee’s franchise restaurants were down 2.2 percent for the quarter, for systemwide same-store sales of negative 3.6 percent. Same-store sales at Taco Bueno increased 1.8 percent for the quarter, its 19th consecutive quarter of same-store sales increases.
Year-to-date results are as follows:
- Net loss for the 53-week period was $29.1 million, or $(0.56) per share on a diluted basis, compared with net income of $77.7 million, or $1.45 per share on a diluted basis for the 52-week period of the prior year. On a pro forma basis, excluding the $0.3 million and $3.3 million extraordinary gain on the early retirement of debt in fiscal 2000 and fiscal 1999, respectively, and adjusting for the $80.3 million and $4.7 million in nonrecurring charges in fiscal 2000 and fiscal 1999, respectively, net income was $20.3 million, or $0.39 per diluted share and $77.3 million, or $1.44 per diluted share for the 53-week period in fiscal 2000 and the 52-week period in fiscal 1999, respectively.
- Revenues for the 53 weeks increased to $2.0 billion, up $98.0 million, or 5 percent, from the prior year 52-week period. Revenues increased $84.7 million, or 13 percent, for the Carl’s Jr. chain, of which the Hardee’s-to-Carl’s Jr. conversions contributed $39.2 million. Hardee’s revenues increased $87.4 million, after adjusting for the transfer of the Hardee’s-to-Carl’s Jr. conversions, primarily due to a full 53 weeks of revenue from the restaurants acquired from Advantica. Revenues for the Taco Bueno chain increased $10.8 million, or 13 percent, as compared with the prior year. The overall increase in revenues was offset in part by the decrease in revenues caused by the sale of the JB’s and Galaxy Diner restaurants in the prior fiscal year.
- Company-operated restaurant-level margins for the Carl’s Jr. chain decreased 3.1 percent to 22.8 percent for the 53 weeks ending January 31, 2000. Excluding the Hardee’s-to-Carl’s Jr. conversions, restaurant-level margins at Carl’s Jr. were 24.1 percent. Hardee’s restaurant-level margins, excluding the store-closure reserve, were 13.6 percent, down from 16.7 percent in the prior year-to-date period. Restaurant-level margins at Taco Bueno were 24.5 percent, down 0.7 percent from the prior year.
“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.