CKE Posts Loss of $11.4 Million; Shares Slip 9.6%

CKE Restaurants Inc., parent of the Carl’s Jr. and Hardee’s fast-food chains, said Monday that charges for settling lawsuits and debt refinancing contributed to a loss in its fiscal second quarter, sending its shares down 9.6%.

The Carpinteria, Calif.-based company reported a loss of $11.4 million, or 20 cents a share, in the period ended Aug. 9, contrasted with a profit of $6.3 million, or 11 cents, a year earlier. Revenue rose 6% to $353.7 million. Same-store sales, or sales at stores open at least a year -- a key performance gauge -- rose 8.1% at Carl’s Jr. and 6.2 % at Hardee’s.

Absent charges of $22.2 million, CKE would have reported earnings of about $10.8 million, or 17 cents a share, up 71% from a year earlier. On that basis, analysts had forecast a per-share profit of 20 cents, according to Thomson First Call.

The charges included $7 million to settle three class-action lawsuits involving overtime pay for former and current managers in California. CKE was accused of improperly classifying some restaurant managers as exempt from the federal Fair Labor Standards Act, which requires overtime pay for workers after 40 hours of work a week.

“As much as it irritates me, I believe we clearly made the correct decision in settling this case,” said Andrew Puzder, CKE’s president and chief executive.

CKE also took a $1.5-million charge to dispose of a corporate jet lease, a move expected to save the company as much as $780,000 a year for the next four years, and a $1.2-million charge to increase litigation reserves. A separate $9-million charge stemmed from debt refinancing.

A midyear analysis concluded that CKE’s costs to settle past workers’ compensation claims at Carl’s Jr. and Hardee’s had increased by a combined $2.3 million -- an expense blamed by some analysts for the company missing their consensus forecast, excluding charges.

CKE shares fell $1.19 to $11.19 on the New York Stock Exchange.

John Beisler, an analyst with Whitaker Securities, attributed the drop in CKE stock to investors’ reaction to the company missing the earnings forecast.

“When the smoke clears here, I think people are going to take a look at the other numbers,” he said. “Sales are strong. They’re paying down debt. The operating margins at Carl’s Jr. are still in the 21% range, which are among the best in the business.”

Added Dean Haskell, an analyst with JMP Securities: “They did what was right for the long-term health of the business. The market has unnecessarily, in my opinion, spanked them for it.”

As of Aug. 9, CKE owned or franchised 3,206 restaurants, including 1,016 Carl’s Jr. outlets, 2,067 Hardee’s restaurants and 105 La Salsa Fresh Mexican Grill eateries.

The company has been moving away from discount menu items and coupons at Hardee’s in favor of a premium product lineup, featuring the chain’s so-called Thickburgers. The change contributed to an 8% boost in Thickburger sales during the second quarter, compared with a 40% decline in sales of discount products, Puzder said.

Instead of buying hot dogs for $1.99, Beisler said, “customers are now paying close to $6 on a Thickburger combo.”