CKE Restaurants Announces Fourth Quarter and Full Year Fiscal 2010 Results

Highlights

(1) We define company-operated restaurant-level margin as restaurant-level income divided by company-operated restaurants revenue. Restaurant-level income is company-operated restaurants revenue less restaurant operating costs, which are the expenses incurred directly by our company-operated restaurants in generating revenues and do not include advertising costs, general and administrative expenses or facility action charges.

(2) Excludes interest expense, depreciation and amortization, facility action charges, share-based compensation expense, and income tax expense.

(3) Diluted earnings per share, excluding mark-to-market adjustments (and related income tax effect at our marginal tax rate) related to our interest rate swap agreements.

Executive Statement

“Blended same-store sales decreased 3.9% for our fiscal year and decreased 6.0% in the fourth fiscal quarter with poor end of year weather impacting our results. Even though we saw weakness in the overall economy, high unemployment rates and deep-discount burger wars, I’m proud to say that for the year we maintained market share, our premium branding and remarkably constant levels of profitability,” said Andrew F. Puzder, chief executive officer. “We will stay on course as we enter Fiscal 2011 with our focus on big, juicy premium burgers for hungry guys and as we grow our company stores and quickly expand our franchisee presence. To grow same-store sales we will continue with our aggressive new product launches, cutting edge advertising, dual branding and remodeling; all the while looking for ways to increase profitability.”

Fourth Quarter Financial Details

• Company-operated restaurant-level margin decreased 180 basis points for the quarter to 16.2% of company-operated restaurants revenue, in part as a result of a 100 basis point increase in depreciation costs, primarily associated with recent remodeling activities. Labor costs also increased due to higher minimum wages in some states and the impact of sales deleveraging.
• Operating income for the quarter was $11.4 million, or 3.7% of total revenue compared to $13.8 million, or 4.2% of total revenue in the same quarter of the prior year.
• Pre-tax income excluding mark-to-market adjustments was $9.8 million for the quarter compared to $10.6 million in the prior year quarter.
• The Company’s Adjusted EBITDA for the quarter remained strong at $32.7 million, or 10.5% of total revenue compared to $34.4 million, or 10.5% of total revenue in the prior year quarter.
• Net income for the quarter includes a $9.9 million tax benefit related to a reduction in our valuation allowance for deferred income tax assets.
• Total quarterly revenue was $311.7 million, a decline of 4.8%.

Fiscal 2010 Operational and Financial Details

• Company-operated restaurant-level margin for the year decreased 30 basis points to 18.6% of company-operated restaurants revenue as a 90 basis point increase in depreciation costs, primarily associated with recent remodeling activities and higher labor costs were, partially offset by favorable commodity costs.
• Operating income was $79.5 million, or 5.6% of total revenue compared to $84.0 million, or 5.7% of revenue in the prior year.
• Pre-tax income excluding mark-to-market adjustments was $70.0 million for the year compared to $67.5 million in the prior year quarter.
• The Company’s Adjusted EBITDA for the year remained strong at $166.3 million or 11.7% of total revenue, compared to prior year of $167.3 million, or 11.3% of total revenue.
• Net income for the year includes a $9.9 million tax benefit related to a reduction in our valuation allowance for deferred income tax assets.
• Total revenue for the year was $1,418.7 million, a decline of 4.3%.
• The Company remodeled 55 Carl’s Jr. and 102 Hardee’s restaurants and completed a combined 42 dual-branded Green Burrito^® and Red Burrito^® restaurant conversions.
• Despite capital expenditures required for the ongoing remodeling program, the Company reduced its bank and other long-term debt for the year by $36.3 million to $278.5 million. As of January 25, 2010, the Company’s leverage ratio was 2.10.
• CKE increased system-wide unit count by 25 restaurants for a consolidated total of 3,141.

Fourth Quarter Concept Details

• Carl’s Jr. company-operated same-store sales for the quarter declined 8.7% as a result of the particularly weak economy in California and poor weather conditions. On a two-year basis, same-store sales decreased 9.3%. Restaurant-level margin declined to 17.3% compared to the prior year quarter at 21.0% of company-operated restaurants revenue. Labor costs increased 110 basis points primarily due to the deleveraging impact of the decrease in same-store sales and the relatively fixed nature of restaurant management costs. Depreciation also increased 80 basis points related to the ongoing remodeling program and equipment upgrades. Other expense increases included the impact of sales deleveraging and shifts in menu mix on fixed costs.
• Hardee’s company-operated same-store sales for the quarter decreased 2.5% also due to weak economic conditions. On a two-year basis, same-store sales decreased 1.0%. Company-operated restaurant-level margin increased to 14.8% of company-operated restaurants revenue compared to 14.0% in the prior year primarily due to lower commodity costs for beef, cheese, oil and flour, lower utilities and decreased general liability insurance costs. Partially offsetting these favorable expenses was a 110 basis point increase in depreciation costs, primarily related to recent remodeling activity and equipment upgrades and increases in labor costs associated with the federal minimum wage rate hike and sales deleveraging.

Fiscal Year 2010 Concept Details

• Carl’s Jr. company-operated same-store sales for the year declined 6.2% as a result of the particularly weak economy in California and poor weather conditions near year end. On a two-year basis, same-store sales decreased 4.1%. Restaurant-level margin declined to 20.0% compared to the prior year at 21.2% of company-operated restaurants revenue. Depreciation increased 70 basis points primarily related to the ongoing remodeling program. Labor costs increased 60 basis points primarily due to the deleveraging impact of the decrease in same-store sales and the relatively fixed nature of restaurant management costs. Lower commodity costs for beef, cheese, and oil products and reduced distribution costs related to lower fuel and administrative costs partially offset increases in other operating costs resulting from sales deleveraging.
• Hardee’s company-operated same-store sales for the year decreased 0.9% also due to weak economic conditions. On a two-year basis, same-store sales increased 0.3%. Company-operated restaurant-level margin increased to 16.8% of company-operated restaurants revenue compared to 16.1% in the prior year despite a 110 basis point increase in depreciation costs, primarily related to recent remodeling activity. Lower commodity costs for beef, cheese, oil and flour products more than offset the increase in depreciation costs.