Following a backlash from shareholders, CKE Restaurants Inc. said Monday it has rescinded a plan to lend up to $10 million to directors and top managers to buy the Anaheim company's slumping stock.
CKE, parent of Carl's Jr. and Hardee's fast-food chains, said it dropped the program after numerous shareholders voiced concerns.
"If you're not getting the positive response, it begs the question, 'Why are we doing this?' " said Loren Pannier, senior vice president of investor relations, who fielded calls from shareholders and analysts.
Instead, CKE's directors approved a plan for the company to buy back up to 5 million shares of common stock, which has lost more than three-fourths of its value this year.
CKE's stock closed Monday at $6.69 a share, up 19 cents, on the New York Stock Exchange. The stock traded as high as $30.31 in January and hit a 52-week low of $6.38 on Sept. 30.
The loan program for senior managers and directors had been approved Oct. 4 but was never implemented, CKE said.
"We recognize that the stock repurchase program is a more straightforward approach to enhancing shareholder value," Chief Executive William P. Foley II said in a statement.
Analysts said the new plan, announced Monday, benefits all shareholders and generally makes more sense, given the sagging stock price.
"If you're going to lend money to the managers, why not try to help the existing shareholders out by buying back stock?" said Andrew Barish, with Robertson Stephens. "It's better all around."
The company declined to say how many calls were received or what types of concerns callers raised.
"To some shareholders, they didn't understand all the whys and wherefores of why we would do that," Pannier said. "They just wanted the traditional company buyback. So that's what we ended up doing." Collectively, insiders already own about 17% of the company's stock, he said.
CKE also said that its previously announced plan to sell at least 350 company-operated restaurants to franchisees would free up funds for the corporate stock repurchase program and reduce debt.
"We are very encouraged by the level of interest received from existing and prospective franchisees, and we have a number of transactions proceeding to definitive agreements," Foley said in the statement.
CKE--through its subsidiaries, franchisees and licensees--operates more than 3,800 fast-food restaurants, including 896 Carl's Jr. and 2,787 Hardee's restaurants.
The slower-than-expected process of remodeling Hardee's has sapped earnings. But analysts said Monday that they believe the company is moving in the right direction by remodeling the outlets and changing the menus to offer some Carl's Jr. fare.
"It's just taken longer than expected to move the sales needle at Hardee's," Barish said. "It's working. It's just not working as quickly as everyone would like."