Anaheim, CA - CKE Restaurants,reported continued growth in net income, revenues, restaurant-level margins and earnings per share for its first fiscal quarter, the 16-week period ended May 18, 1998.
Highlights for the quarter include:
Net income for the first quarter increased 115 % to $22.7 million, or $0.47 per share on a diluted basis, compared with net income of $10.6 million, or $0.28 per share on a diluted basis for the same prior-year period, representing the highest first quarter net income and earnings per share ever reported by the Company.
Operating income for the quarter more than doubled to $45.6 million from $18.4 million. Operating income for Carl's Jr. increased to $24.6 million, up $7.7 million, or 46 %, as compared with the first quarter of fiscal 1998. Taco Bueno's operating income increased $0.9 million to $2.8 million in the first quarter as compared with the prior-year quarter, while Hardee's contributed $22.0 million in operating income in the first quarter.
Revenues for the 16 weeks increased $292.9 million, or 124 %, to $528.2 million as compared with the prior year 16-week period, of which Carl's Jr., Hardee's, and Taco Bueno contributed $21.3 million, $288.8 million, and $2.2 million, respectively, of the increase, offset in part by the decrease in revenues derived from the HomeTown Buffet and Casa Bonita restaurants, which were sold to Star Buffet, Inc. in conjunction with its initial public offering in September 1997. Company-operated restaurant-level margins for the quarter continued to increase, reaching 25.9 % for Carl's Jr., an increase of 1.6 % from the prior-year quarter, and 27.2 % for the Company's Taco Bueno restaurants, an increase of 3.4 % from the same quarter of the prior year. Hardee's margins in the first quarter were 16.3 % as compared with 8.5 % in the first quarter of the prior year (under previous ownership).
Company operated Carl's Jr. restaurants posted same-store sales increases of 5.2 % for the first quarter, topping a 6.1 % increase for the quarter one year ago. Taco Bueno experienced a 6.9 % same-store increase. Hardee's same-store sales were down 10.8 % for the first quarter, much of which can be attributed to menu deletions made since the acquisition.
Operating results for the first quarter include seven weeks of operations for the 557 Hardee's restaurants acquired from Advantica Restaurant Group, Inc. on April 1, 1998 and 16 weeks of operations for Hardee's Food Systems, Inc., which was acquired on July 15, 1997. The first quarter of the prior fiscal year does not include the results of operations of any of the Hardee's restaurants acquired.
During the quarter, the Company made a step toward balancing Hardee's franchise and company store system with the acquisition of 557 formerly franchised Hardee's restaurants from Advantica Restaurant Group, Inc. for the purchase price of $380.8 million, plus the assumption of $45.6 million in capital lease obligations, subject to final closing adjustments. “With this acquisition, the Company currently operates approximately 49 % of the Hardee's restaurants in the system. This purchase underscores our commitment to protecting the Hardee's brand and strengthening the system by promoting a consistent image and increasing overall customer satisfaction,” said Foley. “In addition, the direct ownership of these restaurants allows us the opportunity to further improve operating margins and enhance CKE's shareholder value.” Food, paper, and labor costs at Hardee's decreased from 70.1 % of revenues from Company-operated restaurants in the first quarter of fiscal 1998 (under previous ownership) to 65.0 % in the first quarter of fiscal 1999, after folding in seven weeks of operating results from the 557 restaurants purchased.
The acquisition was financed in part by $192.3 million in proceeds that CKE raised from a private placement of convertible subordinated notes, which was completed on March 13, 1998, and in part by the Company's increased credit facility.
Plans to boost sales at Hardee's are underway. In April, Hardee's launched a new advertising campaign urging fast food lovers to “go all out” when deciding where to eat. The restaurant chain began promoting its signature Burger and Made From Scratch Biscuits in several television and radio commercials, which focus on Hardee's rich, satisfying food in a very entertaining and memorable way. The commercials were created by Angotti, Thomas, Hedge, Inc., which was awarded the Hardee's account in February.
In addition, the Company currently is testing a new look and new All-Star menu at six Hardee's restaurants in the Rocky Mount, N.C. area, where Hardee's is headquartered. The expanded menu features a variety of charbroiled hamburgers and chicken sandwiches including: the Famous Star, Super Star, Charbroiled BBQ Chicken Sandwich and Bacon Swiss Crispy Chicken Sandwich from the Carl's Jr. product line. Hardee's guests still will be able to order all of their favorites -- the Frisco Burger, Monster Burger, fresh fried chicken, hot dogs, freshly sliced roast beef sandwiches and Made From Scratch Biscuits. With the introduction of Carl's Jr.'s limited table service, food orders for all dine-in guests will be delivered fresh and hot to their tables. “The food is clearly the star at Hardee's,” said Foley. “We even changed our sign to let everyone know that.” The restaurants also feature bright, new exteriors, accented with red awnings. On the inside, the kitchens have been outfitted with new charbroilers, and designed for greater efficiency.
Shortly after CKE's acquisition of Hardee's, the Company announced that it would try numerous tests to marry the best of both the Hardee's and Carl's Jr. brands. The new Hardee's in Rocky Mount is one such test. CKE is also testing dual branding in four Midwestern markets: Oklahoma City, Okla., Peoria, Ill., Wichita Falls, Texas, and Tulsa, Okla. The restaurants involved in these tests, which prominently feature the Carl's Jr. sign, serve the Carl's Jr. lunch and dinner menu and Hardee's breakfast. The Company plans to continue to evaluate these test markets to determine its long-term strategy.
“The momentum at our Carl's Jr. chain just keeps building,” declared Tom Thompson, CKE's president and chief operating officer. “Per store averages reached $1.17 million, the highest in the history of Carl's Jr., and Company- operated restaurant-level margins of 25.9 % lead the industry.” Same- store sales at Carl's Jr. increased 5.2 %, on top of a 6.1 % increase in the first quarter a year ago, marking the 12th consecutive quarter of same-store sales growth for the chain.
In addition, the sheer number of Carl's Jr. restaurants is also growing. During the first quarter, the Company opened six new Carl's Jr. restaurants, while the Company's franchisees opened 17 new Carl's Jr. restaurants, including five Hardee's conversions in the Colorado Springs market. Plans are to grow the system by a total of 70 to 80 new units this fiscal year.
Statements that are not historical facts contained in the release are forward-looking statements that involve risks and uncertainties, and actual results could vary materially from the descriptions contained herein due to many factors, including, but not limited to, product demand and market acceptance risks; the effect of economic conditions; the impact of competitive products and pricing; the results of financing efforts; the effect of the Company's accounting policies and other risks detailed in the Company's filings with the Securities and Exchange Commission.
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