CKE Restaurants swings to profit in 2Q

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CKE Restaurants Inc. swung to a profit in the second quarter, saying Wednesday that same-store sales were boosted by minimal commodity inflation, a strong lineup of premium menu items and menu price increases.

The Carpinteria, Calif.-based parent to the Carl’s Jr. and Hardee’s chains remains a private company after postponing an initial public offering that had been scheduled for early August. The company at the time blamed market conditions, though some outside observers speculated that lackluster results and a heavy debt load might have been a factor.

For the second quarter, however, CKE officials said the brands were gaining momentum, despite the negative impact of high temperatures over the summer that may have kept consumers in some markets from going out to eat at lunch.

For the quarter ended Aug. 13, CKE recorded net income of $1.8 million, compared with a loss of $2.2 million a year ago. Revenues for the quarter rose 3 percent to $308.6 million with blended same-store sales at company-operated locations increasing 2.9 percent for the quarter.

At Carl’s Jr., same-store sales rose 4 percent, which reflected an increase in transactions of 3.6 percent and increase in the average check to $7.12 from $7.08 last year.

At Hardee’s, same-store sales rose 1.6 percent, which was largely due to average check increases as transactions declined 2.2 percent, the company said. Hardee’s average check grew to $5.55, compared with $5.44 a year ago.

Promoted products boost sales

Though beef prices were essentially flat for the quarter, Andy Puzder, CKE’s chief executive, said the company is expecting to see beef commodity costs rise as a result of this year’s drought in June and July. “We believe we can deal with it in a number of ways,” he said. “One is with price, although we’re reluctant to take pricing, everybody has to take it when commodities go up.”

The chains, however, also have other proteins on the menu that have been selling well, Puzder said, including chicken sandwiches, chicken tenders and turkey burgers.

During the second quarter, the chains benefited from promoted products, including the Grilled Cheese Bacon Burger, which was tied to a “Spider-Man” movie promotion and was supported by national cable ads, as well as the pulled-pork-topped Memphis BBQ Burger featured in what Puzder described as a “compelling” ad. The commercial features two scantily clad women battling over their meat on a grill, following CKE’s tradition of using hot actresses/models eating burgers in ads to catch the attention of hungry young men.

At Carl’s Jr., the rollout of made-from-scratch biscuits has also boosted sales and contributed to the growth in transactions, though breakfast checks tend to be lower than during later dayparts, Puzder said.

Ted Abajian, CKE’s executive vice president and chief financial officer, said the company is also looking to grow the number of units in both chains that are dual branded with the Mexican-themed concept known as Red Burrito in conjunction with Hardee’s and Green Burrito with Carl’s Jr., though it has the same menu. About half of Carl’s Jr. locations are dual branded with Green Burrito, and about 21 percent of Hardee’s include a Red Burrito menu, and Abajian said there’s room to grow those numbers to up to 70 percent for both brands.

The Red/Green Burrito represents between 8 percent to 10 percent of daily sales totals, mostly through add on orders, he said. “Franchisees are starting to embrace it,” said Abajian. “We think there’s a lot of potential there.”

During the quarter, franchisees opened 13 locations in the U.S. and 14 units internationally, and Puzder said CKE has development commitments for 885 in the pipeline.

CKE operates or franchised 1,333 Carl’s Jr. and 1,939 Hardee’s locations in 42 states in the U.S. and in 26 foreign countries.

Contact Lisa Jennings at lisa.jennings@penton.com.
Follow her on Twitter: @livetodineout