Newspaper article THE JOURNAL RECORD

CKE Shares Drop on News of Expected Lower Sales, Profits

Newspaper article THE JOURNAL RECORD

CKE Shares Drop on News of Expected Lower Sales, Profits

Article excerpt

ANAHEIM, Calif. (Bloomberg) -- CKE Restaurants, the No. 4 U.S. burger chain, warned Monday of disappointing fiscal second quarter earnings because of lower sales and profit at its Carl's Jr. and Hardee's restaurants, sending its shares tumbling by as much as a third.

It's the fourth straight quarter in which CKE warned earnings won't meet expectations. Second quarter earnings will be 19 cents to 21 cents a share. That's much lower than the 33-cent average estimate of analysts polled by First Call. CKE further warned that Carl's Jr. and Hardee's could be a drag on earnings in the third and fourth quarters.

The recasting of Hardee's restaurants into a new Star Hardee's format, with improved menus and service and charbroiling burgers instead of frying, is moving more slowly than CKE expected. Carl's Jr. faces tough competition on the West Coast.

"CKE continues to struggle on two coasts," said Robert Derrington, an analyst at SunTrust Equitable Securities in Nashville, Tenn., who has an "attractive long-term" rating on CKE shares. "This is an extremely competitive segment. All the players are ratcheting up advertising and new product introductions."

Hardee's is in the eastern half of the United States, where competitors include industry leader McDonald's, Wendy's International and the Burger King chain owned by Diageo. It's posting strong breakfast sales, though its lunch and dinner sales continue to lag, Derrington said. CKE, based in Anaheim, also owns the Taco Bueno chain of Mexican restaurants in Texas and Oklahoma.

Shares of CKE fell 3 15/16 Monday to close at 9 5/8 in trading of 3.57 million shares, eight times the three-month daily average. Earlier, the shares fell to 9 1/8, their lowest in more than three years. The shares have fallen about 73 percent in the last year.

In April 1998, CKE bought 557 Hardee's restaurants from Advantica Restaurant Group for $426. …

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