CKE Restaurants® Announces First Quarter Fiscal 2011 Results
Operating income was $20.1 million, or 4.6% of total revenue, compared to $29.7 million, or 6.6% of revenue, in the same quarter of the prior year.
CKE Restaurants, Inc. (NYSE:CKR) announced today first quarter results and the filing of its Report on Form 10-Q with the Securities and Exchange Commission (“SEC”) for the sixteen weeks ended May 17, 2010.
First Quarter Highlights
| First Quarter | ||||||
| ($ in millions, except per share amounts) | FY 2011 | FY 2010 | ||||
| Company-Operated Blended Same-Store Sales | -3.9% | -1.8% | ||||
| Company-Operated Restaurant-Level Margin (1) | 16.7% | 19.9% | ||||
| Total Revenue | $435.2 | $446.8 | ||||
| Operating Income | $20.1 | $29.7 | ||||
| Transaction Fees & Costs | $20.9 | $0.0 | ||||
| Pre-Tax Net (Loss) Income | ($5.4) | $24.2 | ||||
| Net Income (Loss) | ($3.1) | $14.4 | ||||
| Diluted EPS | ($0.06) | $0.26 | ||||
| Adjusted EBITDA, Excluding Transaction Fees & Costs (2) | $46.2 | $54.7 | ||||
(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, transaction fees and costs and income tax expense. See “Non-GAAP Financial Measures” below.
Executive Statement
“In our first quarter, the U.S. economic downturn and particularly high unemployment rates in California and among our core target audience of young men, continued to impact same-store sales at Carl’s Jr.® and Hardee’s®. The deleveraging impact of negative same-store sales combined with increased commodity costs and increased labor costs, due to increases in the minimum wage, also negatively impacted our restaurant-level margins. However, I am pleased that we maintained our market share, that Hardee’s has now had three consecutive periods of positive same-store sales, and that we started to see same-store sales trends improve for both brands late in the quarter,” said Andrew F. Puzder, Chief Executive Officer. “We will remain focused on maintaining our premium quality brands and improving our same-store sales with innovative products and cutting edge advertising that focuses on the taste, quality and value of our products. We will also continue to strategically add to our company-operated store count and expand our franchise base in both domestic and international markets.”
First Quarter Financial Details
- Company-operated restaurant-level margin decreased 320 basis points to 16.7%, in part as a result of a 70 basis point increase in depreciation costs, primarily associated with recent remodeling activities. Food and packaging increased by 100 basis points due to rising commodity costs for beef, pork, produce, potatoes and dairy. Labor costs increased by 120 basis points due to minimum wage rate increases in some states and the impact of sales deleveraging.
- Operating income was $20.1 million, or 4.6% of total revenue, compared to $29.7 million, or 6.6% of revenue, in the same quarter of the prior year.
- The Company incurred transaction fees and costs of $20.9 million which were included in other (expense) income, net. No comparable costs were included in the prior year quarter.
- The Company’s Adjusted EBITDA, excluding transaction fees and costs was $46.2 million, or 10.6% of total revenue, compared to $54.7 million, or 12.3% in the prior year quarter. For the trailing 13 periods ended May 17, 2010, the Company generated Adjusted EBITDA, excluding transaction fees and costs, of $158.0 million.
- Total quarterly revenue was $435.2 million, a decline of 2.6%.
- Despite capital expenditures required for the ongoing remodel program, the Company reduced its bank and other long-term debt by $1.8 million to $276.7 million.
- Carl’s Jr. and Hardee’s increased their system-wide unit count by 5 restaurants for a consolidated total of 3,146.
First Quarter Concept Details
| Carl’s Jr. | Hardee’s | Blended | ||||||||||||||||
| Q1
FY 2011 |
Q1
FY 2010 |
Q1
FY 2011 |
Q1
FY 2010 |
Q1
FY 2011 |
Q1
FY 2010 |
|||||||||||||
| Company-Operated Same-Store Sales | -6.1% | -5.1% | -1.2% | +2.5% | -3.9% | -1.8% | ||||||||||||
| Company-Operated Restaurant-Level Margin | 17.6% | 21.9% | 15.5% | 17.5% | 16.7% | 19.9% | ||||||||||||
| Company-Operated Average Unit
Volume-Trailing 13 Periods (000) |
$1,412 | $1,507 | $1,001 | $1,010 | $1,194 | $1,238 | ||||||||||||
- Carl’s Jr. company-operated same-store sales declined 6.1% as a result of the particularly weak economy in California. On a two-year basis, same-store sales decreased 11.2%. Restaurant-level margin declined to 17.6% of company-operated restaurants revenue compared to the prior year quarter at 21.9%. Food and packaging costs increased 130 basis points primarily due to commodity cost increases for beef, produce, pork and potatoes. Labor costs increased 130 basis points primarily due to the impact of sales deleveraging. Depreciation increased 60 basis points related to the ongoing remodeling program and equipment upgrades. Other increases in occupancy costs included the impact of sales deleveraging on rent, property tax and repair expenses.
- Hardee’s company-operated same-store sales decreased 1.2%, also due to weak economic conditions. On a two-year basis, same-store sales increased 1.3%. Company-operated restaurant-level margin decreased to 15.5% of company-operated restaurants revenue compared to 17.5%. Food and packaging costs increased 60 basis points primarily due to commodity cost increases for pork, beef, produce and dairy products. Labor costs increased 120 basis points primarily due minimum wage rate increases and the impact of sales deleveraging. Depreciation increased 80 basis points related to the ongoing remodeling program and equipment upgrades. Utilities expense decreased mainly due to lower electricity rates and usage.
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CKE RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MAY 17, 2010 AND JANUARY 31, 2010 (In thousands, except par values) (Unaudited) |
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| May 17,
2010 |
January 31,
2010 |
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| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 11,084 | $ | 18,246 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $262 as of May 17, 2010 and $358 as of January 31, 2010 | 36,750 | 35,016 | ||||||||
| Related party trade receivables | 6,230 | 5,037 | ||||||||
| Inventories, net | 25,575 | 24,692 | ||||||||
| Prepaid expenses | 10,439 | 13,723 | ||||||||
| Assets held for sale | 787 | 500 | ||||||||
| Advertising fund assets, restricted | 15,656 | 18,295 | ||||||||
| Deferred income tax assets, net | 26,449 | 26,517 | ||||||||
| Other current assets | 3,938 | 3,829 | ||||||||
| Total current assets | 136,908 | 145,855 | ||||||||
| Notes receivable, net of allowance for doubtful accounts of $362 as of May 17, 2010 and $379 as of January 31, 2010 | 297 | 1,075 | ||||||||
| Property and equipment, net of accumulated depreciation and amortization of $460,729 as of May 17, 2010 and $445,033 as of January 31, 2010 | 566,789 | 568,334 | ||||||||
| Property under capital leases, net of accumulated amortization of $45,665 as of May 17, 2010 and $46,090 as of January 31, 2010 | 33,551 | 32,579 | ||||||||
| Deferred income tax assets, net | 40,373 | 40,299 | ||||||||
| Goodwill | 24,589 | 24,589 | ||||||||
| Intangible assets, net | 2,607 | 2,317 | ||||||||
| Other assets, net | 8,314 | 8,495 | ||||||||
| Total assets | 813,428 | 823,543 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Current portion of bank indebtedness and other long-term debt | $ | 275,659 | $ | 12,262 | ||||||
| Current portion of capital lease obligations | 7,652 | 7,445 | ||||||||
| Accounts payable | 69,787 | 65,656 | ||||||||
| Advertising fund liabilities | 15,656 | 18,295 | ||||||||
| Other current liabilities | 88,440 | 95,605 | ||||||||
| Total current liabilities | 457,194 | 199,263 | ||||||||
| Bank indebtedness and other long-term debt, less current portion | 995 | 266,202 | ||||||||
| Capital lease obligations, less current portion | 43,315 | 43,099 | ||||||||
| Other long-term liabilities | 77,746 | 78,804 | ||||||||
| Total liabilities | 579,250 | 587,368 | ||||||||
| Stockholders’ equity: | ||||||||||
| Preferred stock, $.01 par value; 5,000 shares authorized; none issued or outstanding | — | — | ||||||||
| Series A Junior Participating Preferred stock, $.01 par value; 1,500 shares authorized; none issued or outstanding | — | — | ||||||||
| Common stock, $.01 par value; 100,000 shares authorized; 55,234 shares issued and outstanding as of May 17, 2010; 55,291 shares issued and outstanding as of January 31, 2010 | 552 | 553 | ||||||||
| Additional paid-in capital | 284,001 | 282,904 | ||||||||
| Accumulated deficit | (50,375 | ) | (47,282 | ) | ||||||
| Total stockholders’ equity | 234,178 | 236,175 | ||||||||
| Total liabilities and stockholders’ equity | 813,428 | 823,543 | ||||||||
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CKE RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIXTEEN WEEKS ENDED MAY 17, 2010 AND MAY 18, 2009 (In thousands, except per share amounts) (Unaudited) |
||||||||||
| May 17,
2010 |
May 18,
2009 |
|||||||||
| Revenue: | ||||||||||
| Company-operated restaurants | $ | 331,005 | $ | 343,164 | ||||||
| Franchised and licensed restaurants and other | 104,180 | 103,640 | ||||||||
| Total revenue | 435,185 | 446,804 | ||||||||
| Operating costs and expenses: | ||||||||||
| Restaurant operating costs: | ||||||||||
| Food and packaging | 98,384 | 98,502 | ||||||||
| Payroll and other employee benefits | 98,106 | 97,369 | ||||||||
| Occupancy and other | 79,391 | 78,837 | ||||||||
| Total restaurant operating costs | 275,881 | 274,708 | ||||||||
| Franchised and licensed restaurants and other | 79,767 | 79,493 | ||||||||
| Advertising | 19,817 | 20,767 | ||||||||
| General and administrative | 38,743 | 41,113 | ||||||||
| Facility action charges, net | 863 | 1,048 | ||||||||
| Total operating costs and expenses | 415,071 | 417,129 | ||||||||
| Operating income | 20,114 | 29,675 | ||||||||
| Interest expense | (5,025 | ) | (6,344 | ) | ||||||
| Other (expense) income, net | (20,451 | 862 | ||||||||
| (Loss) income before income taxes | (5,362 | ) | 24,193 | |||||||
| Income tax (benefit) expense | (2,269 | 9,798 | ||||||||
| Net (loss) income | (3,093 | 14,395 | ||||||||
| (Loss) income per common share: | ||||||||||
| Basic | (0.06 | 0.26 | ||||||||
| Diluted | (0.06 | 0.26 | ||||||||
| Dividends per common share | — | 0.06 | ||||||||
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CKE RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIXTEEN WEEKS ENDED MAY 17, 2010 AND MAY 18, 2009 (In thousands) (Unaudited) |
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| May 17,
2010 |
May 18,
2009 |
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| Cash flows from operating activities: | ||||||||||
| Net (loss) income | $ | (3,093 | ) | $ | 14,395 | |||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||
| Depreciation and amortization | 22,644 | 21,298 | ||||||||
| Amortization of deferred loan fees | 365 | 326 | ||||||||
| Share-based compensation expense | 2,187 | 1,850 | ||||||||
| Recovery of losses on accounts and notes receivable | (23 | ) | (70 | ) | ||||||
| Loss on sale of property and equipment and capital leases | 1,280 | 450 | ||||||||
| Facility action charges, net | 863 | 1,048 | ||||||||
| Deferred income taxes | (6 | ) | 5,259 | |||||||
| Other non-cash charges | — | 8 | ||||||||
| Net changes in operating assets and liabilities: | ||||||||||
| Receivables, inventories, prepaid expenses and other current and non-current assets | (442 | ) | 9,716 | |||||||
| Estimated liability for closed restaurants and estimated liability for self-insurance | (906 | ) | (687 | ) | ||||||
| Accounts payable and other current and long-term liabilities | 9,600 | 4,749 | ||||||||
| Net cash provided by operating activities | 32,469 | 58,342 | ||||||||
| Cash flows from investing activities: | ||||||||||
| Purchases of property and equipment | (23,727 | ) | (35,811 | ) | ||||||
| Proceeds from sale of property and equipment | 67 | 793 | ||||||||
| Collections of non-trade notes receivable | 233 | 1,737 | ||||||||
| Acquisition of restaurants, net of cash acquired | — | (485 | ) | |||||||
| Other investing activities | (313 | 42 | ||||||||
| Net cash used in investing activities | (23,740 | ) | (33,724 | ) | ||||||
| Cash flows from financing activities: | ||||||||||
| Net change in bank overdraft | (7,482 | ) | (7,311 | ) | ||||||
| Borrowings under revolving credit facility | 91,000 | 53,500 | ||||||||
| Repayments of borrowings under revolving credit facility | (82,500 | ) | (61,000 | ) | ||||||
| Repayments of credit facility term loan | (10,301 | ) | (2,291 | ) | ||||||
| Repayments of other long-term debt | (9 | ) | (8 | ) | ||||||
| Repayments of capital lease obligations | (2,482 | ) | (1,742 | ) | ||||||
| Repurchase of common stock | (1,823 | ) | (1,340 | ) | ||||||
| Exercise of stock options | 901 | 515 | ||||||||
| Tax impact of stock option and restricted stock award transactions | 122 | 29 | ||||||||
| Dividends paid on common stock | (3,317 | ) | (3,279 | ) | ||||||
| Net cash used in financing activities | (15,891 | ) | (22,927 | ) | ||||||
| Net (decrease) increase in cash and cash equivalents | (7,162 | ) | 1,691 | |||||||
| Cash and cash equivalents at beginning of period | 18,246 | 17,869 | ||||||||
| Cash and cash equivalents at end of period | 11,084 | 19,560 | ||||||||
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CKE RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED PRESENTATION OF NON-GAAP MEASUREMENTS (In thousands) (Unaudited) |
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Reconciliation of net income to Adjusted EBITDA and net income to Adjusted EBITDA, excluding transaction fees and costs: |
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|
|
Sixteen Weeks Ended |
Trailing-13 Periods Ended |
|||||||||||
| May 17, 2010 | May 18, 2009 | May 17, 2010 | |||||||||||
| Net (loss) income | $ | (3,093 | ) | $ | 14,395 | $ | 30,710 | ||||||
| Interest expense | 5,025 | 6,344 | 17,935 | ||||||||||
| Income tax (benefit) expense | (2,269 | ) | 9,798 | 2,911 | |||||||||
| Depreciation and amortization | 22,644 | 21,298 | 72,410 | ||||||||||
| Facility action charges, net | 863 | 1,048 | 4,510 | ||||||||||
| Share-based compensation expense | 2,187 | 1,852 | 8,491 | ||||||||||
| Adjusted EBITDA | 25,357 | 54,735 | 136,967 | ||||||||||
| Transaction fees and costs(1) | 20,851 | — | 21,000 | ||||||||||
| Adjusted EBITDA, excluding transaction fees and costs(1) | 46,208 | 54,735 | 157,967 | ||||||||||
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