CKE RESTAURANTS, INC. REPORTS SECOND QUARTER FISCAL YEAR 2013 RESULTS
CARPINTERIA, Calif. – September 18, 2012 —CKE Restaurants, Inc. (“CKE Restaurants”) announced today its second fiscal quarter financial results for the twelve weeks ended August 13, 2012. The Company expects to file its Quarterly Report on Form 10-Q with the Securities and Exchange Commission (“SEC”) on Wednesday, September 19, 2012 after the close of the financial markets.
Company-Operated Same-Store Sales and Average Unit Volumes
Company-operated same-store sales increased 2.9% in the second quarter of fiscal 2013. Carl’s Jr. same-store sales increased 4.0% and Hardee’s same-store sales increased 1.6% during the quarter.
Second Quarter
Year-to-date
Brand
FY13
FY12
FY13
FY12
Carl’s Jr.
4.0
%
2.0
%
3.2
%
2.0
%
Hardee’s
1.6
%
2.5
%
2.2
%
6.4
%
Consolidated
2.9
%
2.2
%
2.7
%
4.1
%
At the end of the second quarter, the fifty-two week average unit volume for company-operated restaurants was $1,277,000. The fifty-two week average unit volumes for Carl’s Jr. and Hardee’s were $1,438,000 and $1,132,000, respectively.
To date, company-operated same-store sales for the third quarter of fiscal 2013 are positive in the mid-single digits.
Second Quarter Results
The Company reported total revenue of $308.6 million for the fiscal 2013 second quarter, an increase of $8.9 million, or 3.0%, compared to the fiscal 2012 second quarter.
“We are encouraged by the strong momentum of our business and the positive same-store sales results at both brands during the second quarter. The Company has now had eight consecutive quarters of positive company-operated same-store sales. Hardee’s has now had nine consecutive quarters of positive same-store sales and Carl’s Jr. posted its sixth consecutive quarter of positive same-store sales,” said Andrew F. Puzder, Chief Executive Officer.
For the fiscal 2013 second quarter, company-operated restaurant-level adjusted EBITDA margin was 19.4%, a 230 basis point increase over the prior year second quarter, in part due to the increase in company-operated same-store sales. Food and packaging costs as a percentage of company-operated restaurants revenue decreased 90 basis points, primarily as a result of higher year over year restaurant pricing and changes in product mix. While beef prices were essentially flat compared to the prior year quarter, commodity costs were lower for pork, cheese and dairy products and higher for potato and chicken products. Occupancy and other expense, excluding depreciation and amortization, as a percentage of company-operated restaurants revenue decreased 90 basis points, primarily as a result of sales leverage, lower repairs and maintenance expense and utilities expense. Labor and benefits as a percentage of company-operated restaurants revenue decreased 50 basis points. Refer to the further discussion of company-operated restaurant-level adjusted EBITDA margin under the heading “Non-GAAP Measures” below.
Adjusted EBITDA for the second quarter of fiscal 2013 increased by $6.8 million, or 16.5%, over the prior year second quarter. Adjusted EBITDA was $47.6 million in the second quarter of fiscal 2013 compared to $40.9 million in the prior year second quarter. Adjusted EBITDA represents net income (loss) adjusted to exclude income taxes, interest income and expense, asset impairments, facility action charges, depreciation and amortization, management fees, the effects of acquisition accounting adjustments, and certain non-cash and unusual items. Refer to the further discussion of Adjusted EBITDA under the heading “Non-GAAP Measures” below, which includes a reconciliation of net income (loss) to Adjusted EBITDA.
As of August 13, 2012, cash and cash equivalents were $62.2 million and the Company had $69.4 million available under its credit facility with no borrowings outstanding. Additionally, the Company had $31.1 million of temporarily restricted cash and cash equivalents as of August 13, 2012, which was restricted as a result of a tender offer for $29.9 million principal amount of the Company’s 11.375% senior secured second lien notes due 2018 (the “Senior Secured Notes”). The tender offer expired on August 16, 2012 with no notes tendered, and the related cash and cash equivalents became unrestricted and available for general corporate purposes at that time.
During the second quarter of fiscal 2013, the Company entered into agreements with independent third parties under which the Company sold and leased back 19 restaurant properties. The Company generated proceeds of $27.6 million in connection with these transactions.
On July 16, 2012, the Company redeemed $60.0 million principal amount of its Senior Secured Notes at a price equal to 103% of the principal amount redeemed. Subsequent to the redemption and as of August 13, 2012, the principal amount of the Senior Secured Notes outstanding was $472.1 million.
Capital expenditures for the fiscal 2013 second quarter were $9.8 million, of which $4.0 million related to new store openings, dual-branding and remodeling projects. For fiscal 2013, the Company expects capital expenditures to be between $60.0 million and $70.0 million.
As of August 13, 2012, the Company’s system-wide restaurant portfolio consisted of:
Carl's Jr.
Hardee's
Other
Total
Company-operated
423
469
0
892
Domestic franchised
696
1,230
7
1,933
International franchised
214
240
0
454
Total
1,333
1,939
7
3,279
Conference Call Information
The Company will host its second quarter fiscal 2013 conference call on Wednesday, September 19, 2012 at 8:00 a.m. (PDT). The dial in information is as follows: (973) 500-2164 U.S. and international. The conference ID is 29873355.
A replay will be made available approximately two hours after the conclusion of the live event. The replay will be available for 7 days and can be accessed by calling (404) 537-3406. The conference ID is 29873355.
Company Overview
CKE Restaurants, Inc. is a privately held company headquartered in Carpinteria, Calif. As of the end of the second quarter of fiscal 2013, the Company, through its subsidiaries, had a total of 3,279 franchised or company-operated restaurants in 42 states and 26 foreign countries. For more information about CKE Restaurants, please visitwww.ckr.com.
Forward-looking Statements
Matters discussed in this press release contain forward-looking statements, including those relating to the Company’s financial statements and results of operations, the Company’s expected capital expenditures, the timing of the Company’s earnings conference call, and the filing of the Company’s periodic reports with the SEC, which are based on management’s current beliefs and assumptions. Although the Company does not make forward-looking statements unless it has a reasonable basis for doing so, the Company cannot guarantee their accuracy. Such statements are subject to risks and uncertainties that are often difficult to predict, are beyond the Company’s control, and which may cause results to differ materially from expectations. Factors that could cause the Company’s results to differ materially from those described include, but are not limited to: the Company’s ability to compete with other restaurants, supermarkets and convenience stores for customers, employees, restaurant locations and franchisees; changes in consumer preferences, perceptions and spending patterns; changes in food, packaging and supply costs; the ability of the Company’s key suppliers to continue to deliver premium-quality products to the Company at moderate prices; the Company’s ability to successfully enter new markets, complete construction of new restaurants and complete remodels of existing restaurants; changes in general economic conditions and the geographic concentration of the Company’s restaurants, which may affect the Company’s business; the Company’s ability to attract and retain key personnel; the Company’s franchisees’ willingness to participate in the Company’s strategy; risks associated with implementing the Company’s growth strategy; the operational and financial success of the Company’s franchisees; the willingness of the Company’s vendors and service providers to supply goods and services pursuant to customary credit arrangements; risks associated with operating in international locations; the effect of the media’s reports regarding food-borne illnesses, food tampering and other health-related issues on the Company’s reputation and its ability to procure or sell food products; the seasonality of the Company’s operations; the effect of increasing labor costs including health care related costs; increased insurance and/or self-insurance costs; the Company’s ability to comply with existing and future health, employment, environmental and other government regulations; the Company’s ability to adequately protect its intellectual property; the adverse affect of litigation in the ordinary course of business; a significant failure, interruption or security breach of the Company’s computer systems or information technology; catastrophic events including war, terrorism and other international conflicts, public health issues or natural causes; the potentially conflicting interests of the Company’s sole stockholder and the Company’s creditors; the Company’s substantial leverage which could limit its ability to raise capital, react to economic changes or meet obligations under its indebtedness; the effect of restrictive covenants in the Company’s indenture and credit facility on the Company’s business; and other factors as discussed in the Company’s filings with the SEC.
As a result of these risks and uncertainties, or as a result of other risks and uncertainties of which the Company’s management is currently unaware or that the Company’s management does not presently believe to be material, the Company cannot assure readers that the forward-looking statements in this press release will prove to be accurate. Furthermore, if the Company’s forward-looking statements prove to be inaccurate, the impact may be material. In light of the significant uncertainties in these forward-looking statements, readers should not regard these statements as a representation or warranty by the Company or any other person that the Company will achieve its objectives and plans in any specified time frame, or at all. The forward-looking statements in this press release speak only as of the date of this press release.
The Company expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether to conform such statement to actual results or as a result of changes in the opinions or expectations of the Company’s management, new information, future events or otherwise, in each case except as required by law.
Contact: Beth Mansfield Public Relations (805) 745-7741 bmansfield@ckr.com
1
CKE RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands) (Unaudited)
Twelve Weeks Ended
Twenty-Eight Weeks Ended
August 13, 2012
August 15, 2011
August 13, 2012
August 15, 2011
Revenue:
Company-operated restaurants
$
270,734
$
262,991
$
632,200
$
614,595
Franchised restaurants and other
37,893
36,738
88,758
85,717
Total revenue
308,627
299,729
720,958
700,312
Operating costs and expenses:
Restaurant operating costs:
Food and packaging
80,113
80,231
188,615
189,133
Payroll and other employee benefits
76,233
75,310
178,998
176,973
Occupancy and other
61,992
63,393
143,477
146,076
Total restaurant operating costs
218,338
218,934
511,090
512,182
Franchised restaurants and other
18,854
18,440
44,483
44,318
Advertising
16,016
15,399
36,868
35,460
General and administrative
29,772
29,346
71,488
70,306
Facility action charges, net
2,029
(70
)
2,430
441
Other operating expenses
—
194
—
545
Total operating costs and expenses
285,009
282,243
666,359
663,252
Operating income
23,618
17,486
54,599
37,060
Interest expense
(17,834
)
(17,816
)
(41,633
)
(42,211
)
Other expense, net
(3,179
)
(2,215
)
(2,030
)
(1,416
)
Income (loss) before income taxes
2,605
(2,545
)
10,936
(6,567
)
Income tax expense (benefit)
837
(314
)
(341
)
(1,735
)
Net income (loss)
$
1,768
$
(2,231
)
$
11,277
$
(4,832
)
2
CKE RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except shares and par values) (Unaudited)
August 13, 2012
January 31, 2012
ASSETS
Current assets:
Cash and cash equivalents
$
62,168
$
64,555
Cash and cash equivalents — restricted
31,073
—
Accounts receivable, net of allowance for doubtful accounts of $29 as of August 13, 2012 and $38 as of January 31, 2012
19,517
24,099
Related party trade receivables
24
252
Inventories
17,050
16,144
Prepaid expenses
12,861
15,897
Advertising fund assets, restricted
22,941
18,407
Deferred income tax assets, net
25,487
25,140
Other current assets
3,857
3,695
Total current assets
194,978
168,189
Property and equipment, net of accumulated depreciation and amortization of $157,637 as of August 13, 2012 and $117,010 as of January 31, 2012
624,614
645,552
Goodwill
208,923
208,885
Intangible assets, net
425,059
433,139
Other assets, net
25,393
24,373
Total assets
$
1,478,967
$
1,480,138
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Current portion of long-term debt
$
4
$
3
Current portion of capital lease obligations
7,982
7,988
Accounts payable
24,113
40,790
Advertising fund liabilities
22,941
18,407
Other current liabilities
99,458
85,169
Total current liabilities
154,498
152,357
Long-term debt, less current portion
465,094
523,638
Capital lease obligations, less current portion
31,083
34,981
Deferred income tax liabilities, net
148,214
156,656
Other long-term liabilities
251,581
197,767
Total liabilities
1,050,470
1,065,399
Stockholder’s equity:
Common stock, $0.01 par value; 100 shares authorized, issued and outstanding as of August 13, 2012 and January 31, 2012
—
—
Additional paid-in capital
459,733
457,252
Investment in CKE Inc. Toggle Notes
(8,362
)
(8,362
)
Accumulated deficit
(22,874
)
(34,151
)
Total stockholder’s equity
428,497
414,739
Total liabilities and stockholder’s equity
$
1,478,967
$
1,480,138
3
Non-GAAP Measures
Adjusted EBITDA and Adjusted EBITDAR
Adjusted EBITDA represents net income (loss) adjusted to exclude income taxes, interest income and expense, asset impairments, facility action charges, depreciation and amortization, management fees, the effects of acquisition accounting adjustments, and certain non-cash and unusual items. The Company calculates Adjusted EBITDAR by adjusting Adjusted EBITDA to exclude the Company’s aggregate cash rent expense, less rental income from franchisees and third parties, subject to certain adjustments and exclusions.
Management uses Adjusted EBITDA and Adjusted EBITDAR because it believes that they are important measures of operating performance. In particular, management considers Adjusted EBITDA and Adjusted EBITDAR to be useful financial measures that highlight trends in the Company’s business and provide a comparable measure of profitability of similar enterprises. In addition, management believes that Adjusted EBITDA and Adjusted EBITDAR are effective, when used in conjunction with net income (loss) or income (loss) before income taxes, in evaluating asset performance, and differentiating efficient operators in the industry. Furthermore, management believes that Adjusted EBITDA and Adjusted EBITDAR provide useful information to noteholders because these measures provide insight into management’s evaluation of the Company’s results of operations. The calculations of Adjusted EBITDA and Adjusted EBITDAR may not be consistent with “EBITDA” and “EBITDAR” for the purpose of the covenants in the agreements governing the Company’s indebtedness.
Adjusted EBITDA and Adjusted EBITDAR are not measures of financial performance under U.S. generally accepted accounting principles (“GAAP”), are not intended to represent cash flows from operations under U.S. GAAP and should not be used as alternatives to net loss, or loss before income taxes, as indicators of operating performance, or as alternatives to cash flow from operating, investing or financing activities as a measure of liquidity. Management compensates for the limitations of using Adjusted EBITDA and Adjusted EBITDAR by using them only to supplement the Company’s U.S. GAAP results to provide a more complete understanding of the factors and trends affecting the Company’s business. Adjusted EBITDA and Adjusted EBITDAR have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of the Company’s results as reported under U.S. GAAP.
Some of the limitations of Adjusted EBITDA and Adjusted EBITDAR are:
•
Adjusted EBITDA and Adjusted EBITDAR do not reflect cash used for capital expenditures;
•
Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and Adjusted EBITDA and Adjusted EBITDAR do not reflect the cash requirements for such replacements;
•
Adjusted EBITDA and Adjusted EBITDAR do not reflect changes in, or cash requirements for, the Company’s working capital requirements;
•
Adjusted EBITDA and Adjusted EBITDAR do not reflect the cash necessary to make payments of interest or principal on the Company’s indebtedness; and
•
Adjusted EBITDAR does not reflect the cash necessary to make payments of rent under the Company’s lease obligations.
While Adjusted EBITDA and Adjusted EBITDAR are frequently used as measures of operations and the ability to meet indebtedness service requirements, these measures as calculated by the Company are not necessarily directly comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation.
4
CKE RESTAURANTS, INC. ADJUSTED EBITDA AND ADJUSTED EBITDAR (In thousands) (Unaudited)
Twelve
Twelve
Twenty-eight
Twenty-eight
Weeks ended
Weeks ended
Weeks ended
Weeks ended
13-Aug-12
15-Aug-11
13-Aug-12
15-Aug-11
Net income (loss)
$
1,768
$
(2,231
)
$
11,277
$
(4,832
)
Interest expense
17,834
17,816
41,633
42,211
Income tax expense (benefit)
837
(314
)
(341
)
(1,735
)
Depreciation and amortization
18,445
18,905
43,912
43,843
Facility action charges, net
2,029
(70
)
2,430
441
Transaction-related costs (1)
—
194
—
545
Management fees (2)
574
575
1,339
1,342
Share-based compensation expense
1,064
999
2,481
2,468
Losses on asset and other disposals
199
283
420
996
Difference between U.S. GAAP rent and cash rent
700
659
1,535
1,277
Other, net (3)
4,173
4,055
4,586
5,815
Adjusted EBITDA
$
47,623
$
40,871
$
109,272
$
92,371
Net Rent (4)
12,279
11,923
28,721
27,283
Adjusted EBITDAR
$
59,902
$
52,794
$
137,993
$
119,654
(1) Transaction-related costs include investment banking, legal, and other costs related to the merger that occurred on July 12, 2010. (2) Represents the amounts associated with the management services agreement with Apollo Management VII, L.P. for on-going investment banking, consulting, and financial planning services, which are included in general and administrative expense.
(3) Other, net includes interest income, the net impact of acquisition accounting, early extinguishment of debt, executive retention bonus, severance costs and disposition business expense.
(4) Represents aggregate cash rent expense of the Company less rental income from franchisees and third parties, subject to certain adjustments and exclusions.
Company-operated restaurant-level adjusted EBITDA is expressed in dollars and defined as company-operated restaurants revenue (i) less restaurant operating costs excluding depreciation and amortization expense and (ii) less advertising expense. Restaurant operating costs are the expenses incurred directly by company-operated restaurants in generating revenues and do not include advertising costs, general and administrative expenses or facility action charges. Company-operated restaurant-level adjusted EBITDA margin is expressed as a percentage and defined as company-operated restaurant-level adjusted EBITDA divided by company-operated restaurants revenue.
Company-operated restaurant-level adjusted EBITDA and company-operated restaurant-level adjusted EBITDA margin are non-GAAP measures utilized by management internally to evaluate and compare the Company’s operating performance for company-operated restaurants between periods. In addition, management believes that these financial measures provide useful information to potential investors and analysts because they provide insight into management’s evaluation of the Company’s results of operations. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measures. These non-GAAP measures have certain limitations including the following:
•
Because not all companies calculate these measures identically, the Company’s presentation of such measures may not be comparable to similarly titled measures of other companies;
•
These measures exclude certain general and administrative and other operating costs, which should also be considered when assessing the Company’s operating performance; and
•
These measures exclude depreciation and amortization, and although they are non-cash charges, the assets being depreciated or amortized will often have to be replaced and new investments made to support the operations of the Company’s restaurant portfolio.
The following is a reconciliation of company-operated restaurant-level adjusted EBITDA and company-operated restaurant-level adjusted EBITDA margin (unaudited):
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