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.
SEC Filings
The Company’s filings with the SEC are available to investors at
www.ckr.com under “Investors/SEC Filings.”
Non-GAAP Financial
Measures
Adjusted EBITDA, excluding transaction fees and costs, is a
non-GAAP measure used by our lenders as an indicator of earnings
available to service debt, fund capital expenditures and for other
corporate uses. Our maximum annual capital expenditures are limited
by our senior credit facility, based on a sliding scale driven by
our Adjusted EBITDA. Investors should consider these non-GAAP
financial measures in addition to, and not as a substitute for, or
superior to, measures of financial performance prepared in
accordance with GAAP.
CKE Restaurants,
Inc.
Headquartered in Carpinteria, Calif., CKE Restaurants, Inc. is
publicly traded on the New York Stock Exchange under the symbol
“CKR.” As of the end of its first quarter of fiscal 2011, CKE
Restaurants, Inc., through its subsidiaries, had a total of 3,146
franchised, licensed or company-operated restaurants in 42 states
and in 16 countries, including 1,233 Carl's Jr. Restaurants and
1,901 Hardee's restaurants. For more information about CKE
Restaurants, please visit www.ckr.com.
Upcoming
Communications/Special Meeting of Stockholders
The Company will not be hosting a conference call in associated
with the first quarter results and the filing of its Report on Form
10-Q with the SEC for the sixteen weeks ended May 17, 2010. The
Company will be hosting a webcast of the special meeting of
stockholders, which will be held at 8:00 a.m., PDT, on Wednesday,
June 30, 2010. At the special meeting of stockholders, the
Company’s stockholders will vote on the proposal to adopt the
Company’s merger agreement with Columbia Lake Acquisition Holdings,
Inc., and Columbia Lake Acquisition Corp. Columbia Lake Acquisition
Holdings, Inc. and Columbia Lake Acquisition Corp. are affiliates
of Apollo Management VII, L.P. If the proposal to adopt the merger
agreement is approved by the requisite number of holders of the
Company’s common stock, the Company anticipates that the closing of
the merger will occur on July 7, 2010. The Company’s stockholders
are encouraged to read the definitive proxy statement relating to
the merger in its entirety as it provides, among other things, a
detailed discussion of the process that led to execution of the
merger agreement. The Company invites investors to listen to the
live webcast of the special meeting of stockholders at www.ckr.com
under “Investors.”
Safe Harbor
Disclosure
Matters discussed in this press release contain forward-looking
statements relating to the Company's strategic initiatives to
maintain its premium brand image, improve same-store sales, add to
its company-owned store count and expand its franchise base in
domestic and international markets, which are based on management's
current beliefs and assumptions. Such statements are subject to
risks and uncertainties that are often difficult to predict and
beyond the Company's control. Factors that could cause the
Company's results to differ materially from those described
include, but are not limited to, the Company's ability to compete
with other restaurants, delicatessens, supermarkets and convenience
stores for customers, employees, restaurant locations and
franchisees; the effect of restrictive covenants in the Company's
credit facility on the Company's business; changes in consumer
preferences, perceptions and spending patterns; the ability of the
Company's key suppliers to continue to deliver quality products to
the Company at moderate prices; the Company's ability to
successfully enter new markets and complete remodels of existing
restaurants; changes in economic conditions which may affect the
Company's business and stock price; the Company's ability to
attract and retain key personnel; the Company's franchisees'
willingness to participate in the Company's strategy; the
operational and financial success of the Company's franchisees;
changes in the price or availability of commodities; the effect of
the media's reports regarding food-borne illnesses, food tampering
and other health-related issues on the Company's reputation and its
ability to obtain products; the seasonality of the Company's
operations; the Company's ability to hire and retain qualified
personnel and the effect of higher labor costs; increased insurance
and/or self-insurance costs; the Company's ability to comply with
existing and future health, employment, environmental and other
government regulations; risks associated with the proposed
transaction, including the occurrence of any event, change or other
circumstances that could give rise to the termination of the merger
agreement; the inability to complete the proposed transaction due
to the failure to obtain stockholder approval; the failure to
satisfy other conditions to completion of the proposed transaction
or the failure to obtain the necessary debt financing arrangements
set forth in the debt commitment letter received in connection with
the proposed transaction; and other factors as discussed in the
Company's filings with the SEC. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak
only as of the date they are made. The Company undertakes no
obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise, except as required by law or the rules of the New York
Stock Exchange. Accordingly, any forward-looking statement should
be read in conjunction with the additional information about risks
and uncertainties as discussed in the Company’s filings with the
SEC.
Additional Information About
The Transaction And Where To Find It
A definitive proxy statement of the Company and other materials
has been filed with the SEC. INVESTORS AND SECURITY HOLDERS ARE
ADVISED TO READ THE PROXY STATEMENT AND THESE OTHER MATERIALS
CAREFULLY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE
COMPANY AND THE PROPOSED TRANSACTION. Investors and security
holders may obtain a free copy of the definitive proxy statement
and other documents filed by the Company with the SEC at the SEC’s
Web site at www.sec.gov.
The definitive proxy statement and such other documents are also
available for free on the Company’s website at www.ckr.com under
“Investors/SEC Filings” or by directing such request to Investor
Relations, CKE Restaurants, Inc., 805-745-7750.
The Company and its directors, executive officers and other
members of its management and employees may be deemed to be
participants in the solicitation of proxies from its stockholders
in connection with the proposed transaction. Information concerning
the interests of the Company’s participants in the solicitation is
set forth in the Company’s proxy statements and Annual Reports on
Form 10-K, previously filed with the SEC, and in the definitive
proxy statement relating to the proposed transaction.
CKE RESTAURANTS, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
AS OF MAY 17, 2010 AND JANUARY
31, 2010
(In thousands, except par
values)
(Unaudited)
May 17,
2010
January 31,
2010
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
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
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)
May 17,
2010
May 18,
2009
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
CKE RESTAURANTS, INC. AND
SUBSIDIARIES
CONDENSED PRESENTATION OF
NON-GAAP MEASUREMENTS
(In thousands)
(Unaudited)
Reconciliation of net income to
Adjusted EBITDA and net income to Adjusted EBITDA, excluding
transaction fees and costs:
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
____________
(1) Our credit facility was amended to exclude certain
transaction fees and costs from Adjusted EBITDA, for purposes of
calculating our maximum leverage ratio, not to exceed $21,000.
During the trailing-13 periods ended May 17, 2010, we incurred
$21,674 in transaction fees and costs, and have excluded $21,000 of
such costs in accordance with the terms of the amendment.
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