The promotion of turkey burgers and chicken tenders helped drive transactions for Carl’s Jr. and Hardee’s in fiscal 2012, but officials at parent CKE Restaurants Inc. said Wednesday they feel no pressure to add more healthful items to the menu.
In a call to analysts Wednesday following the Carpinteria, Calif.-based company’s report earnings report, Andrew Puzder, CKE’s chief executive, said if anything, the two brands would look for opportunities for add more indulgent burgers to the menu. The focus for both chains continues to be the target audience of “young, hungry men.”
Puzder said the chains have enough on their menu to please calorie counters.
“In fact, I would challenge anybody in the industry to come up with a menu as healthy as ours,” he said, pointing to the line of salads, turkey burgers under 500 calories, and whole-muscle chicken breast and barbecue chicken sandwiches on honey whole wheat buns.
CKE has not actively promoted the better-for-you products – except the turkey burgers, which were supported by the company’s traditional commercials featuring sexy models, in that case beauty queen Miss Turkey wearing a turkey-print bikini.
Puzder said the company’s change in advertising agencies to Los Angeles-based 72andSunny, resulting in a return to the hot-models-in-bikinis advertising emphasis, also helped drive positive results for fiscal 2012.
One of the agency’s first ads for fiscal 2013 featured swimsuit model Kate Upton promoting the Southwest Patty Melt, which Puzder said “clearly shows they get our brand and knows what our target audience of young, hungry guys like.”
Financial results
CKE swung to a profit for the Jan. 30-ended quarter reporting net income of $88,000 for the 12-week period compared with a loss of $5 million in the same quarter, a 13-week period, last year.
Revenue for the quarter fell 3.3 percent to $287.4 million, in part because of the extra week last year. Excluding that impact, revenues would have increased 4.4 percent, the company said.
Blended same-store sales for company-operated stores rose 3.6 percent for the quarter, reflecting increases of 6.1 percent at Hardee’s and 1.7 percent at Carl’s Jr.
At Hardee’s, the same-store sales increase represented a 1.5 percent increase in transactions and a 4.6 percent increase in average check. At Carl’s Jr., however, transactions during the quarter rose 3.4 percent while average check fell 1.3 percent. Company officials blamed the drop on a shift to higher traffic at breakfast, when check averages are lower. The company recently rolled out its made-from-scratch biscuits to more stores within the Carl’s Jr. chain. The biscuits are now available at Carl’s Jr. locations in the Los Angeles market, as well as Bakersfield, Calif., Spokane, Wash., Tuscon, Ariz., and all of Utah, Oklahoma and Texas.
Puzder said same-store sales increases have continued into the first quarter of fiscal 2013, so far trending in the low single digits.
For the year, CKE reported a net loss of $6.3 million, compared with a loss of $35.4 million the prior year. Corporate revenue totaled $1.3 billion, a decrease of 3.8 percent compared with fiscal 2011. CKE officials said the sale of Carl’s Jr.’s distribution business in July 2010, along with the impact of the extra week last year, hurt results.
Same-store sales for the year rose 3.5 percent for company stores among both brands, reflecting a 5.2 percent increase at Hardee’s and a 1.9 percent increase at Carl’s Jr.
Formerly a public company, CKE was acquired in July 2010 by an affiliate of Apollo Management VII LP.
Puzder said CKE has continued to be challenged by high food cost inflation, particularly for beef, pork and potatoes. He declined to quantify the expected impact of inflation for fiscal 2013, but in the past has pointed to industrywide estimates of inflation reaching between 3 percent and 5 percent.
The QSR environment
In the past, Carl’s Jr. and Hardee’s have suffered as competitors drove traffic with deep discounts, but that climate appears to be easing, Puzder said.
“There has been a lot of cutting back on discounting and value initiations, which is good for the entire industry and was driven by commodity costs,” he said. “It’s hard to sell something edible for 99 cents, so you really don’t see much of that anymore.”
Instead, Puzder said companies like McDonald’s and Burger King are looking for menu variety, with McDonald’s expanding into a coffee platform to compete against Starbucks. Burger King officials last week said they will be following in McDonald’s’ footprints in many ways, such as adding snack wraps, frappes, smoothies and premium salads to the menu.
Breakfast is another trend many in the quick-service world are tapping, noted Puzder, “and we have a big jump on that.”
Ultimately, Puzder said, “People are looking for a very good product, a more premium product. And as they have more money in their wallet, we’ll be able to take advantage of that.”
CKE ended the year with 3,243 restaurants, including 1,313 Carl’s Jr. locations and 1,921 Hardee’s worldwide, as well as nine locations of secondary brand Green Burrito.
Contact Lisa Jennings at [email protected].
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