Higher commodity prices for beef, cooking oil and dairy, and a recall of ground turkey put a strain on Carl’s Jr. and Hardee’s, parent company CKE Restaurants Inc. reported Wednesday.
In a conference call reporting narrowed losses for CKE Restaurants during the second quarter, chief executive Andy Puzder said sales of the new turkey burgers at Carl’s Jr. and Hardee’s were surpassing expectations.
However, sales slowed in the current third quarter after Springdale, Ark.-based Cargill Meat Solutions Corp. recalled millions of pounds of ground turkey in August and September that may have been contaminated with a drug-resistant strain of Salmonella.
The turkey used by Carl’s Jr. and Hardee’s was not part of the recall, but publicity about the event impacted sales of the new menu items.
“That will fade,” Puzder predicted, “and we’ll promote it again once the publicity around Cargill goes away.”
This week, Hardee’s and Carl’s Jr. debuted their first new beef burger limited-time offer in almost a year: a Steakhouse Burger, featuring A1 Steak Sauce, fried onion strings and blue cheese.
Brisk sales of the turkey burgers earlier in the year and other poultry products, such as hand-breaded chicken tenders, helped offset rising commodity costs for CKE. Chicken costs have not been as challenging as beef, the company said.
Food and packaging costs for the second quarter rose by 90 basis points, primarily because of higher costs for beef, cooking oil, dairy, flour and pork, Puzder said.
Such higher costs were offset somewhat by lower labor costs and unspecified menu price increases over the past two quarters.
Raising prices is “something we need to continually do,” Puzder said. “But it’s hard to keep up, especially with the economy in the state it’s in.”
CKE reported a loss of $2.2 million for the quarter ended Aug. 15, compared with a loss of $27.3 million for the same quarter last year.
Blended same-store sales for company-operated units climbed 2.2 percent for the quarter, with Carl’s Jr. up 2 percent and Hardee’s showing a 2.5-percent increase.
The company reported revenues of $299.7 million, down 4.5 percent from a year ago, in part because of the sale of Carl’s Jr.’s distribution business in July last year.
Excluding revenue from the distribution center last year, revenues would have been up by $10.8 million, or 3.7 percent, the company said.
Five weeks into the third quarter, the company said sales so far were flat to slightly positive.
At the end of the second quarter, the company operated, franchised or licensed 1,278 Carl’s Jr. and 1,914 Hardee’s locations.
Formerly a publicly traded stock, CKE was acquired about a year ago by an affiliate of Apollo Management VII LP.