There are plenty of ways to make money in the stock market, but long-term success stories tend to have a few traits in common. Typically, you need a company with a clear competitive advantage -- popular brands, innovation, low costs, etc. -- and a high-caliber management team with shareholders' best interests at heart.
This Fool still can't tell whether CKE Restaurants (NYSE:CKR), operator of Carl's Jr. and Hardee's, fits the bill on either account.
On the basis of the information presented, which did not include a balance sheet or cash flow statement, CKE's third quarter looked decent. While revenue was down a bit more than 1%, it still exceeded the average estimate. Operating margin improved meaningfully, though, and net income rose more than 20%. Reported earnings per share also surpassed the average estimate.
Same-store sales trends in the quarter were a bit more of a mixed bag. Blended together, the company saw same-store sales fall 1.9% after rising 6.1% a year ago. At Carl's Jr., the drop was modest -- just 0.1% versus a very large 7.9% rise last year. But the picture at Hardee's wasn't quite as tasty, as sales fell 3.5% against a 4.5% rise last year.
The company also provided November results. Blended sales were up slightly, with Carl's Jr. significantly up (on top of a good year-ago number) and Hardee's down a fair bit (against a strong gain last year).
What troubles me here is not the business per se, but management's comments about its performance. For instance, high energy prices were the excuse for Hardee's modest third-quarter performance. So why wouldn't this also affect Carl's Jr.? In November, it was once again Mother Nature's fault, as cold and/or inclement weather hurt Hardee's numbers.
Making matters worse, management devoted time in its earnings release to whine about the company's relative valuation. Just to frame the argument a little more objectively, my calculations indicate that CKE Restaurants has an average return on invested capital relative to the industry but trades at only about a 5%-15% discount, depending upon which valuation methodology you use. Frankly, if you want to make an argument about undervalued dining concepts, I'd start with Jack in the Box (NYSE:JBX), Yum! Brands (NYSE:YUM), or perhaps Checkers (NASDAQ:CHKR) first.
Quite honestly, I'm not that impressed with CKE at this point. A recently enacted poison-pill plan makes me question management's commitment to the true best interests of shareholders, and I'm not convinced that the Hardee's business is really getting a whole lot better. For now, at least, I'd be more interested in the food than the stock.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
