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CKE Posts Loss; Stock Price Dives

Fast food: Carl's Jr. parent is down $61.8 million in the 4th quarter as it struggles to revive its Hardee's chain. Shares fall to $5.19, a 52-week low.


CKE Restaurants Inc., struggling to rejuvenate the fortunes of its sagging Hardee's restaurant chain, on Wednesday posted a fourth-quarter operating loss.

The poor showing, at a time when most restaurant chains are expected to report double-digit financial gains, sent the Anaheim company's stock to a 52-week low. The shares, which have lost more than 70% of their value over the last year, closed at $5.19, off 94 cents, in trading on the New York Stock Exchange.

CKE Chief Executive Tom Thompson said he was "deeply disappointed" with the results. "We firmly believed we would have been further down the road," he added.

The company, the nation's fourth largest hamburger chain, has been hurt by slow sales at its burger chains and costs to remodel Hardee's restaurants into Carl's Jr. outlets.

Analysts point to the company's Hardee's chain as its major source of trouble.

"While we are seeing modest improvement in Carl's Jr., we are not seeing improvement of any consequence at Hardee's," said Robert M. Derrington, an analyst with SunTrust Equitable Securities in Nashville, Tenn.

Indeed, CKE said sales at units open at least a year--a key barometer of performance--were up 1.5% at Carl's Jr. restaurants but down 2.2% for the Hardee's chain.

Thompson said Hardee's has been a much bigger challenge than the company had anticipated, in part because many of the Hardee's restaurants that CKE purchased had been poorly run.

This year, CKE is planning to sell up to 500 company-owned Hardee's stores to franchisees, a move that is expected to generate $150 million.

For the fourth quarter, CKE reported an operating loss of $12.5 million, or 25 cents a share, compared with an operating profit of $13 million, or 25 cents, a year earlier. Some analysts had anticipated a profit of 5 cents a share for the most recent quarter. Revenue rose 10% to $475.5 million.

"I was looking for break-even results and I thought I was being conservative," said Dennis Forst, an analyst with Cleveland-based McDonald Investments.

The net loss for the quarter totaled $61.8 million, or $1.22 a share, compared with net income of $13.5 million, or 26 cents a share, a year ago.

The loss in the recent quarter included $99.8 million in charges related to the company's plans to close 105 Hardee's restaurant and writing down the value of investments in other restaurant operations. Those include Santa Barbara Restaurant Group, Checkers Drive-In Restaurants and Anaheim-based Boston West, the Southern California franchisers of Boston Market restaurants.

CKE also recorded a pretax gain of $19.5 million from sales of restaurants.

Over the last year, the company has remodeled 387 Hardee's restaurants, converting them to "Star Hardee's" featuring improved menus and more service. In all, 491 company restaurants and 148 franchised restaurants have been remodeled.

"The results are especially disappointing given the number of Hardee's that have been remodeled," analyst Derrington said.

Thompson also noted that Carl's Jr. advertising failed to boost sales significantly. He expressed confidence in a new campaign created by Los Angeles-based Mendelsohn/Zien Advertising. The new ads made their debut last month.

Hardee's also began a new campaign last month featuring music from Motown's Smokey Robinson and Vonda Shepard of television's "Ally McBeal."

For the year, CKE reported a net loss of $29.1 million, or 56 cents a share, compared with a profit of $77.7 million, or $1.45 a share, the previous year. Revenue rose 5% to nearly $2 billion.

CKE's woes are a contrast to the robust operations of some competitors. Numerous fast-food chains, including McDonald's and Wendy's, are expected to report double-digit earnings for the quarter.

Many chains are focusing on improving service and efficiency for their existing units rather than building new ones, and that's helping same-store sales.

CKE has 2,788 Hardee's and 934 Carl's Jr. restaurants. The company also operates 122 Taco Bueno outlets.

Dow Jones News Services contributed to this story.


Still Falling

CKE Restaurant Inc's stock, in a prolonged slump as the company struggles to shape up its restaurant chains, hit a 52-week low Wednesday. Wednesday close: $5.19.

Source: Bloomberg News

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