Almost two years after going private, the parent company of fast-food chains Carl’s Jr. and Hardee’s is looking to go public again. Analysts say it’s because the fast-food burger market is on the upswing.
Nick Setyan, an analyst at the downtown L.A. office of Wedbush Securities, said now is a good time for CKE Inc. to go public.
“It seems like the entire quick-service burger category is on an upswing now, especially in the last couple of months,” he said. “This is just a good time for the private-equity guys that bought CKE to monetize their investment. They bought the company when times were tough, so they got a good price. Now they can make money off this deal.”
CKE went private in July 2010 when New York private-equity firm Apollo Management VII LP acquired the Carpinteria hamburger chain operator for $694 million. The buyout came at a time when CKE was reporting falling same-store sales for Carl’s Jr. quarter after quarter. In the fourth quarter of 2009, for example, just months before the deal was announced, Carl’s Jr. same-store sales plummeted 8.7 percent from the previous year.
Since then, same-store sales have improved. But revenue remains down, from almost $1.5 million in 2009 to just over $1.3 million in 2011.
Between Carl’s Jr. and Hardee’s, CKE has 3,243 franchised and company-operated restaurants in 42 states and 25 foreign countries.
CKE filed papers last week to raise up to $100 million with the initial public offering. The fast-food company did not disclose how many shares would be sold nor expected price. The company hasn’t yet announced a date for the IPO and, citing Securities and Exchange Commission rules, did not comment for this article.
But CKE’s quick transition from public to private to public again could be a problem.
Darren Tristano, executive vice president at Chicago restaurant consulting firm Technomic Inc., said public ownership might make it more difficult for the fast-food chains to carry out sales, marketing and management strategies.
“When you transition from being private to going public, goals change,” he said. “Doing an IPO, now all of a sudden you’ve got shareholders you need to satisfy. It’s a lot of work to go public.”
When it announced the IPO, CKE said it intends to use the money to pay down debt. As of Jan. 31, the company had accrued $523 million in long-term debt. It paid $98.1 million in interest expenses last year.
Justine Hunter, a partner at accounting and business consulting firm Moss-Adams in West Los Angeles, said she thinks CKE needs to up its $100 million IPO if it expects to make a dent in its debt.
“This is only a preliminary filing, but to make a significant difference in the company’s cash flow, they’d have to go out for closer to what the outstanding debt is,” Hunter said.
Lloyd Greif, chief executive at downtown L.A. investment bank Greif & Co., said he’d be surprised if investors would be interested in the CKE stock.
“I can understand that they’re doing it now because they want the public to pay down their debt for them,” he said. “But that doesn’t mean the public’s going to play ball. This is not a stock I would pick up.”