CKE Profit Slides Marginally

CKE Restaurants, Inc. (CKR) recently reported second-quarter 2010 results amid a crumbling economy, plagued by rising unemployment and waning consumer discretionary spending.

The operator of Carl's Jr. and Hardee's fast food chains’ second quarter profit slid less than a percent despite a mid-single digit decline in the top-line. Effective cost management and lower commodity prices helped offset sluggishness in sales.

Net profit for the quarter under review fell 0.7% year-on-year to $12.3 million. However, excluding mark-to-market adjustments, net profit climbed 2.8% to $11.6 million.

CKE Restaurants’ quarterly earnings of 21 cents a share (excluding mark-to-market adjustments), missed the Zacks Consensus Estimate by a penny, but increased 5.0% from 20 cents reported in the year-ago quarter. On a reported basis, earnings came in at 22 cents a share, down 4.3% from 23 cents reported in the prior-year quarter.

The fast-food operator continues to experience a falling top-line. After declining 4.2% in the first quarter of 2010, total revenue tumbled 4.7% to $336 million in the reported quarter dragged down by a fall in same-store sales. Company-operated restaurants sales dropped 3.5% to $257.8 million, whereas franchise and licensed restaurant sales dipped 8.5% to $78.2 million.

The weak economy continues to hurt same-store sales, which fell 4.6% compared to an increase of 3.6% in the year-ago quarter. Same-store sales at the company’s restaurant concepts, Carl's Jr. and Hardee's restaurants, fell 6.1% and 2.7%, respectively.

Despite the downtrend, CKE Restaurants’ company-operated restaurant-level margin remained flat at 19.3% compared to the prior-year quarter, favorably impacted by lower commodity costs for beef, cheese and oil products.

However, CKE Restaurants and other fast-food chains, like McDonald’s Corporation (MCD - Analyst Report), Burger King Holdings (BKC), Yum! Brands (YUM - Analyst Report) and Chipotle Mexican Grill (CMG - Analyst Report) are faring better than casual and upscale dining restaurants, as cash-strapped consumers are trending towards lower-priced dining options.

However, on a broader perspective the rising job losses have pushed back the restaurant industry, as consumers have now become more sensitive towards economic conditions.

CKE Restaurants ended the quarter with cash and cash equivalents of $19.2 million, and long-term debt of $289.8 million, representing debt-to-capitalization ratio of 57.1%.

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