Cke Restaurants Chief Considering Franchise Incentive

(Wednesday, March 11, 2009) - CKE Restaurants Inc., which owns or operates more than 3,100 restaurants, is talking with its franchisees about incentives to keep building Carl's Jr. and Hardee's restaurants amid the deepening U.S. recession.

"There's nervousness out there," Chief Executive Officer Andrew Puzder said. "Phased-in" royalty payments, the fees independent operators pay the company, may be a way to keep money in franchisees' pockets. A specific plan hasn't been determined, he said.

"I'm thinking about this year doing an incentive to keep franchisees building," he said in an interview with Bloomberg News yesterday. "Something that makes them encouraged instead of scared" to invest in their business.

While rival hamburger chains such as McDonald's Corp. and Burger King Holdings Inc. are focusing on their value menus, Puzder is reluctant to offer discounts, which he says erode profit margins. Instead, he's aiming for growth among diners looking to save money on meals by defecting from full-service restaurants such as Brinker International Inc.'s Chili's and TGIFriday's, owned by closely held Carlson Cos.

"People are still eating; they consider us a value," he said. "We're hurting less than everyone else."

Carl's Jr., which has more than 1,000 restaurants in the western U.S., is introducing a Kentucky Bourbon Burger today. Hardee's, with more than 1,500 locations in the Midwest and southeastern U.S., will offer the Western Bacon Thickburger, its version of Carl's Jr.'s popular sandwich. Commercials for the new Hardee's burger featuring Padma Lakshmi, host of television show Top Chef, will start the week of March 30.

Paying Down Debt

Puzder, 58, is trimming capital spending to pay down CKE's $252 million term loan and maintain a 6-cent quarterly dividend. While he says the company's stock is "undervalued," he doesn't plan on buying back shares this year. CKE repurchased about $200 million worth of stock in recent years.

"This is the time to get that debt down," Puzder said. "The best thing we can do for our shareholders is to pay down debt."

CKE, based in Carpinteria, California, climbed 20 cents to $6.63 at 4 p.m. in New York Stock Exchange composite trading. The shares plunged 41 percent in the 12 months before today.

Since CKE announced Puzder would become chief executive on Sept. 7, 2000, the company's stock gained 61 percent through yesterday. By comparison, the Standard & Poor's 500 Index fell 52 percent during that time.

Remodeling Restaurants

Revenue climbed 6.7 percent to $1.53 billion in the year that ended Jan. 31, 2008, from $1.44 billion for the 12 months through Jan. 28, 2002, the first full year that Puzder was CEO. Net income was $31.1 million, compared with a net loss of $84 million.

Of the eight analysts following CKE, four rate the stock a "buy," three say "hold" and one says "sell," according to Bloomberg data.

One of the company's biggest capital expenses has been remodeling restaurants under both chains to lift sales. This year will represent the last big investment in the project, Puzder said.

CKE has signed agreements with franchisees to build more than 300 restaurants in locations including Texas and Las Vegas in the next 10 years. Another 144 are planned for overseas in countries including China, Pakistan and Kazakhstan.

Franchise owners currently pay 4 percent of their sales to CKE, Puzder said.

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