While the company would like to open a minimum of 50 company-owned units a year for the next three to four years, "we won't build most of the new stores up until we see results from the handful we are doing," said Andy Puzder, chairman and CEO, during a conference call.
He also said that despite their good performance, "we can't delay remodels, especially of Carl's Jr. units, any longer," although he did not disclose the pace of remodels. The company plans $650 million in capital expenditures over the next five years.
Investments will be split among four areas: store remodels, new units, corporate infrastructure, which includes maintenance of existing units, and dual branding. That involves dual branding of Green Burrito with Carl's Jr., which has been underway in some markets for nearly a decade, and dual branding of Red Burrito with Hardee's, now in test at 20 locations. Of the latter, Puzder said, "while we're encouraged, we've slowed the roll out to measure performance in both volume and profits."
Comp store sales "were stronger than expected," he said, cautioning that they may not continue at that level. Operating costs at both brands declined, to 75.1% of company-operated revenue at Carl's Jr. and 82% of company operated-revenue at Hardee's. The company attributed the improvements primarily to higher same-store sales and reduced commodity costs. Costs of pork, cheese, and beef, which had been high, are down.
"We can't be sure this will continue," Puzder said. "As commodity costs decline, we see more discounting among competitors, which we believe is unfortunate after a focus on quality."
Rising gas prices and rising interest rates contribute to what Puzder called "a challenging macro-environment." In response to a Wall Street analyst's question about the impact of high gas prices, he said, "Last year they had a negative impact on both brands. This year, we're experiencing some trade-down (increased) business from casual dining. I'm not sure how long that will last, or, if gas prices get higher, that could change."
CKE's first-quarter income before taxes grew to $27 million, a gain of $10.3 million, or up 62% over the prior year quarter. Operating income for the most recent quarter rose to $33.6 million, up from $23.1 million in the same quarter a year ago. Net income was up just slightly, from $16 million in first-quarter the previous year to $16.2 million. That's because of a one-time $10.8-million income tax expense in this first quarter, versus just $600,000 for the same quarter a year ago.
By the end of first quarter CKE, through its subsidiaries, had a total of 3,141 franchised, licensed or company-owned restaurants in 43 states in 13 countries. This includes 1,062 Carl's Jr. units, 1,963 Hardee's and 100 La Salsa Fresh Mexican Grill units.
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