CKE Shares Up Steeply as Firm Slashes Debt, Sells Restaurants

By JENNIFER BELLANTONIO
Orange County Business Journal

Has CKE Restaurants Inc. finally made it over the hump?

Company insiders are betting it has. In recent weeks, William Foley, CKE's chairman, Chief Executive Andrew Puzder and company founder and chairman emeritus Carl Karcher have stepped up their buying of CKE shares.

"I personally felt that the stock price was at a level that had a potential to appreciate significantly over the next few years," Foley said.

CKE shares reached $8.62, their 52-week high, Nov. 27. The company started the year trading at $2.63. The company counts a market value of more than $400 million.

A year ago, the Anaheim-based operator of Carl's Jr. and Hardee's fast food chains still was wrestling with debt then about $220 million. Puzder, the former president of Hardee's Food Systems Inc., took the helm of CKE a year ago and has worked to turn around Hardee's, which had been draining CKE of profits since it was acquired about three years ago.

Fast forward to this fall and CKE is reporting no long-term debt, primarily from selling its Taco Bueno brand and hundreds of company-owned Carl's Jr. and Hardee's stores to franchisees. Some unprofitable stores were closed.

In August, Hardee's even showed a same-store sales increase albeit 1 percent for the first time in years. The moves have gone over well on Wall Street, where CKE's stock has been on an upswing for most of this year. "It's encouraging. We've got to get up to 15 or 20," Karcher said.

Last month, CKE showed it had gotten its appetite back for buying. The company said it intends to buy Santa Barbara Restaurant Group Inc., which includes the Green Burrito and La Salsa chains, for about $60 million in stock.

The two companies have been connected for years. Foley also is chairman of Santa Barbara Restaurant, and Puzder sits on Santa Barbara's board. He formerly served as the company's chief executive and president.

CKE, as Green Burrito's largest franchisee, runs 107 dual Carl's Jr.-Green Burrito stores.

This acquisition stands to relieve CKE from royalty and development obligations to Green Burrito, Puzder said. Plus, it gives CKE control of the popular La Salsa casual Mexican chain, which CKE intends to grow.

There are 80 La Salsa restaurants, half company-owned and half franchised. Puzder said CKE would like to add 50 to 80 restaurants in Los Angeles, San Diego and Orange counties, and eventually franchise the concept nationwide.

But Puzder doesn't foresee another replay of the Hardee's debacle. "With Hardee's it was like the little fish eating the big fish," he said. "We bought a brand that was much bigger than we are and we had a much more difficult time integrating that brand into our culture."

Tony Brenner, an analyst with Newport Beach-based Roth Capital Partners LLC, said CKE seems to have turned a corner eliminating debt that had been "hamstringing" the company for years and improving sales at Hardee's. "The number of stores they were operating at Hardee's was way too cumbersome for this company," Brenner said.

About a third of the 2,492 Hardee's stores now are company-owned with the rest franchised. Carl's Jr. locations (now at 968) are evenly split between CKE and franchisees.

Still, CKE has work to do.

For the 12 weeks ended Aug. 13, revenue was $340.7 million, down from $438.5 million a year earlier. The company reported a pro-forma loss before restructuring charges and after factoring in a tax issue of $2.4 million for the period, down from $2.9 million a year ago.

"That's the biggest challenge facing us getting the company past that operating loss mark," Puzder said.

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