CKE: Health care impact won't be devastating

After reporting a swing to profit in the third quarter, officials at CKE Restaurants Inc. indicated that the company would likely be able to handle costs associated with the federal health care mandate.

In a call with analysts Wednesday to discuss earnings, Andy Puzder, CKE’s chief executive, gave projections for the anticipated cost of implementation of the Patient Protection and Affordable Care Act, saying it will likely be less than $15 million — probably ranging between $6 million and $12 million.

“This isn’t devastating to our business; it’s something we can deal with, but we’ll have to try to get that cost down as much as we can,” Puzder said.

Puzder said that CKE, parent to the Hardee's and Carl's Jr. quick-service chains, is looking at various options to control costs, including creating more part-time jobs, as well as the possible option of cutting back on new construction or remodeling.

Price increases are also likely for many restaurant companies as a result of the federal health care mandate, he said. “Everyone [in the restaurant industry] will have to increase prices to cover whatever additional costs there are,” Pudzer said. “But the economy is still in a fragile state and you don’t want prices to get too high.”

Too much is unknown to determine the exact costs and how the company should respond, Puzder added. “You don’t know how many people will sign up,” he said. “That’s a real wild card.”

During the Nov. 5-ended third quarter, however, CKE successfully managed food costs in part with menu mix. With beef prices flat compared to last year’s third quarter, and pork prices down, both Carls Jr. and Hardee's benefited from the promotion of the Memphis BBQ Burger — a burger topped with pulled-pork barbecue and crispy onion strings.

Carl’s Jr. has also benefited from the continued rollout of scratch-made biscuits, a signature menu item from Hardee’s. Puzder said biscuits are now in about 69 percent of domestic locations and 93 percent of company-owned Carl’s Jr. restaurants. “Biscuits have been a very powerful sales building tool for the brand,” he said.

CKE recorded a profit of $4.8 million during the third quarter, compared with a loss of $1.5 million a year ago.

Revenues for the quarter totaled $310.8 million, up about 6 percent.

Same-store sales at company-owned restaurants increased 5.5 percent at Carl’s Jr. and 3.6 percent at Hardee’s for a consolidated increase of 4.6 percent.

Carpinteria, Calif.-based CKE ended the quarter with a total of 1,349 Carl’s Jr. and 1,936 Hardee’s locations, as well as seven units under the Green Burrito or Red Burrito banners, for a total of 3,292.

Contact Lisa Jennings at [email protected].
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