CKE Restaurants Sales Down, Plans Franchise Growth

NEW YORK, NY — CKE Restaurants Inc. (NYSE: CKR), the holding company for Carl's Jr. and Hardee's quick service restaurant brands, said last week Wednesday at a conference of stock analysts and investment bankers that company-owned same store sales were down.

Carl's Jr. restaurants earlier reported an 8.9% drop for December of stores open at least a year, while Hardee's stores were down 3.2%. Year to date same store sales of units opened at least a year fell for Carl's Jr. by 6 percent and Hardee's reporting a 0.7 percent slide.

No information on same store sales of its 3,147 franchises were released.

Andy Puzder, CKE's chief executive officer, preferred to take attention off the dramatic dip in same store sales and onto market share, where the two brands have maintained its share, "even with competitor burger wars," a presentation slide stated.

"It is not our brand at all," the chief executive stressed. "The reality is the market has shrunk," he said, emphasizing that sales of competitors and the quick service sector as a whole have contracted. The chain hopes that maintaining market share during tough times will help it when the economy strengthens.

The chief executive officer reported on the firm's ability to become viral in its marketing efforts. "The Internet over the last few months has become our focus." The new grilled chicken salad at Carl's Jr. that featured Kim Kardashian had nearly 2 million views on YouTube.

CKE's answer to these realities is a strategy of what it calls, "evolutionary growth," in which it franchises more units and grows its Mexican cuisine co-brand of Red and Green Burrito restaurants. Green Burrito is largely used as a dual restaurant concept inside Carl's Jr. units on the West Coast, while Red Burrito is used for the Hardee's brand, located largely on the East Coast.
Carl's Jr. salad ad featuring Kim Kardashian sees 2 million views on YouTube

It also plans to upgrade or remodel 89% of its company-owned restaurants by the end of its 2011 fiscal year.

CKE plans to grow the percentage of total Carl's Jr. or Hardee's branded restaurants to franchises. "Our commitment to profitability at the restaurant level are very influential in a franchisee deciding to join," said Puzder. The company to move from 70 to 75% franchised stores by 2015. The CEO declared, "90% of our new restaurants will be built by franchisees."

McDonald's, Burger King, Wendy's and other hamburger chains have expanded their dollar value menu items to attract customers. But CKE has a different strategy. "The discount wars are not a game that we will get into," said Puzder. "Our business strategy is to sell products that we make a good profit on." It takes just as much effort to make a 99 cent sandwich asjavascript:void(0) a $4 sandwich. Jack in the Box has a 40% volume advantage but margins are only 13.6%."
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