The news from Thickburger and Six Dollar Burger purveyor CKERestaurants
CKE took on massive debt to acquire the Hardee's brand. In 2001, the company underwent a significant financial restructuring, setting out to reinvent the brand from a discount one to a premium product one. During fiscal 2004, CKE cleaned up the Hardee's restaurants and introduced the Thickburger (to complement the premium Six Dollar Burger at Carl's Jr.). Same-store sales at company-owned restaurants declined 5.8% in the last quarter of fiscal 2003 and increased 9.2% in the same quarter the following year. That's healthy.
Same-store sales were up 11.9% at Hardee's and 9.8% at Carl's Jr. in the first quarter of fiscal 2004, but it has been downhill since then. They were up 1% at Carl's Jr. during the most recent quarter and were flat at Hardee's, compared with 8.1% and 6.2% increases for the year-ago period.
While Tuesday's earnings press release is full of positive talk about improving margins and strong earnings growth, investors would be wise to focus on the warnings in the latest same-store sales announcement. Higher gasoline prices are still here and not likely to subside, which might well ding CKE results moving forward.
Value investors will notice that CKE sells for 7.2 times its enterprise value to earnings before interest, taxes, depreciation, and amortization, or EBITDA. That looks cheap when larger peers such as McDonald's
CKE has made massive strides in its restructuring. But the near-term outlook is gloomy, and the company's stock is hardly value-priced. For now, investors would be wise to step aside, enjoy a Thickburger at a local Hardee's, and wait for signs that same-store sales are set to grow before considering investments in this stock.