The sluggish economic environment, severe job losses and raging discount wars among fast-food chains such as McDonald’s Corporation (MCD: 68.23 -0.40 -0.58%), Burger King Holdings (BKC: 17.71 -0.09 -0.51%) and Yum! Brands(YUM: 41.19 -0.22 -0.53%) continue to hurt CKE’s same-store sales.
The operator of Carl’s Jr. and Hardee’s fast food chain pointed out that blended same-store sales dipped 3.9% for the period, compared with a drop of 1.8% witnessed in the prior-year period.
Same-store sales at Carl’s Jr. restaurants continue to struggle, tumbling 6.1% for the quarter ended May 17, following a drop of 5.1% in the year-ago period. The decline was due to the chain’s high exposure to a soft economy and high unemployment in California.
Hardee’s restaurants have been faring better than Carl’s Jr. restaurant chain as same-store sales declined 1.2% for the period compared with an increase of 2.5% in the year-ago period, given the sluggish economy.
To revive its sagging same-store sales, CKE had earlier hinted that it will focus more on value for menu items, new product launches, dual branding, remodeling of restaurants and aggressive advertising.
Total revenue for the period dropped 2.6% year over year to $435.2 million.
Consolidated company-operated restaurant margins narrowed 320 basis points year over year to 16.7% on costs related to remodeling activities as well as higher commodity and labor costs. Restaurant margins at Carl’s Jr. restaurant chain also slid 430 bps to 17.6% and fell 200 bps to 15.5% at Hardee’s restaurants.
At the end of the first quarter, CKE reduced its bank and other long-term debt by $1.8 million to $276.7 million.
At the end of fiscal 2010, CKE operated 3,141 restaurants in 42 states and 16 countries, including 1,224 Carl’s Jr. restaurants and 1,905 Hardee’s restaurants.
We currently have a short-term Hold recommendation on CKE Restaurants.