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CKE's Stock Price Drops Even as Earnings Increase

Restaurants: Concerns over continuing sales declines at Hardee's stores push Anaheim company's shares lower.

September 10, 1998| From Bloomberg News

CKE Restaurants Inc. shares fell 15% as a continued decline in sales at its Hardee's fast-food restaurants overshadowed better-than-expected earnings in the fiscal second quarter.

Shares of the Anaheim-based company fell $5.31 to $31.19 in trading of 1.9 million, almost five times the three-month daily average.

CKE, which also operates Carl's Jr. and Taco Bueno restaurants, said same-store sales at Hardee's locations fell 9.7% in the quarter ended Aug. 10. Same-store sales fell 10.8% in the first quarter. With 2,901 locations, Hardee's make up the majority of CKE's restaurants.

"There's concern that they're not making enough progress," said Allan Hickok, a Piper Jaffray analyst.

Still, Hickok said he believes the worries are unfounded. The company "has basically delivered on their promises for the last year and a half."

Indeed, CKE said same-store sales at Carl's Jr. restaurants rose 5.1% in the second quarter, while Taco Bueno's same-store sales rose 5.9%.

CKE said net income in the quarter more than doubled to $22.6 million, or 46 cents a share, from $10.5 million, or 25 cents a share, a year earlier. Analysts surveyed by First Call Corp. had estimated earnings of 43 cents a share.

Revenue rose 96% to $474.8 million from $242.1 million.

For the first six months, net income climbed to $45.3 million, or 93 cents a share, from $21.1 million, or 53 cents a share, for the same period a year ago. Revenue topped $1 billion, up from $477.5 million.

The company said it is experimenting with ways to revitalize its Hardee's brand, including testing a concept called Star Hardee's. Star Hardee's retain the Hardee's name but use Carl's Jr.'s star on the signs and packaging. Customers can order some menu items popular at both chains.

CKE in April bought 557 Hardee's locations for $426.4 million from Advantica Restaurant Group Inc. CKE is the franchiser of Hardee's restaurants.

The company also said its sales were hurt by McDonald's Corp.'s promotion using Teenie Beanie Baby toys.

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