You'll find more meat in a Hardee's Thickburger than in this morning's quarterly report out of CKE Restaurants (NYSE:CKR).
The company behind the Carl's Jr. and Hardee's chains saw its top line climb just 3%, to $359 million. Earnings fell to $0.15 per share. The results fell shy of the $0.18 per share in earnings and $366 million in revenue that Wall Street was expecting.
The lackluster numbers made for a bland finish to what had been a scintillating fiscal year. For all of fiscal 2007, CKE posted a 43% increase in pre-tax profits.
The January quarter wasn't a complete dud. The company was able to keep its operating costs in check, particularly at Hardee's (which accounts for 1,906 of the company's 3,105 restaurants). Comps were also strong, up 2.8% at Carl's Jr. and 4.8% at Hardee's. Those results are stacked on top of healthy increases a year earlier, too.
Why did revenues climb so little if things were hopping at the unit level? Well, several of the company-owned Carl's Jr. locations were handed over to franchisees. More importantly, there are 55 fewer restaurants open now than there were a year ago.
Is that troubling? Not necessarily, even though one would think that the resilient comps would be attracting more potential franchisees. CKE has been a bit of a trendsetter in the industry. The Thickburger introduction seemed like heresy in these health-conscious times, but Burger King (NYSE:BKC) rode that to introduce its BK Stackers and king-sized omelet sandwiches. CKE throws jalapenos into its burgers? Now Wendy's (NYSE:WEN) is getting in on the fun.
Unfortunately, you can innovate and still be left behind. CKE also watches over 96 La Salsa quick-service Mexican eateries. That's definitely a growth industry. Just see how Jack in the Box (NYSE:JBX) is thriving with Qdoba. You also have a high-octane standalone thriller in Chipotle (NYSE:CMG). So is La Salsa a secret weapon at CKE? No way. It's a stagnant concept, and that's being kind. There are actually six fewer locations open today than there were a year ago.
The next few quarters will be challenging for the fast-food industry. Minimum-wage hikes, an uneasy economy, and even a recent spike in French fry prices will test margins. CKE will survive, of course. There won't be a Sickburger on the menu. But it's probably fair to say that the stock won't be as hot as some of the company's jalapeno-topped sandwiches, either.
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Longtime Fool contributor Rick Munarriz misses the Hardee's that he used to frequent back in high school. He does not own shares in any of the stocks in this story. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
