CARPINTERIA Calif. CKE Restaurants Inc. posted an 8.3-percent jump in its first quarter profit as menu price increases, cost control measures and a large share repurchase plan helped to offset the slowed sales and the growing operating and commodity costs plaguing most restaurant companies.
CKE, which operates and franchises the Carl’s Jr. and Hardee’s brands, said it would further control costs by backing off growth plans for its Hardee’s restaurants. A 32-percent reduction in new unit development over the next three years, from a planned 126 openings to 86 openings, will reduce capital spending by $54.2 million, the company said. In addition, CKE plans to refranchise an additional 40 Hardee’s locations, following the company’s successful sale of more than 200 corporate Hardee’s restaurants to franchisees over the past year.
The slowed development and additional refranchising will cut CKE’s capital spending by 15 percent over the next three years, from $408.4 million to $354.2 million, the company reported.
The moves will “increase our franchise business mix, reduce our capital requirements and provide a more stable income stream, while at the same time allowing us to allocate our financial and corporate resources more efficiently,” Andrew Puzder, CKE president and chief executive, said in a statement.
The comments come after CKE stomached some investor pressure earlier this month from 3.6-percent stakeholder Ramius LLC, which penned a letter to the company that called for reduced spending. Ramius called CKE’s former capital plan “too aggressive and unwarranted” in the current economic environment.
For the quarter ended May 19, CKE reported net income of $16.6 million, or 31 cents per share, compared with $15.4 million, or 23 cents per share, during the year-earlier period. CKE’s 24-percent surge in per-share earnings during the latest quarter was aided mostly by large share buybacks that reduced outstanding shares by 20.4 percent.
The company also said it was able to offset increased commodity costs by raising menu prices. Still, operating costs as a percentage of revenue rose 30 basis points, or 0.3 percentage points, in this latest quarter, to 80.1 percent of corporate restaurant revenue.
Total corporate revenues fell 3.2 percent to $466.2 million. Corporate store sales fell 5.9 percent to $358.2 million, a result that reflected the refranchised Hardee’s restaurants but also positive blended same-store sales and the opening of 20 new corporate units.
First quarter same store sales at corporate locations increased 3.9 percent for the Carl’s Jr. brand, but dropped 0.6 percent at Hardee’s.
Company officials further said on Wednesday that same-store sales had increased at both brands for the four weeks ended June 16. At Carl’s Jr., same-store sales were up 2.5 percent, aided by sales of the featured Chili Cheese Burger, which is now on the menu. At Hardee’s, same-store sales rose 2.8 percent, in part because of strong sales of the Prime Rib Thickburger, the company reported.
At the end of the quarter, CKE operated, franchised or licensed 1,162 Carl’s Jr. and 1,923 Hardee’s restaurants in 42 states and 13 countries.
