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The good news is that in period 1 Hardees’s same-store sales increased 3.2% vs. 1.6% last year. The bad news is that Carl's Jr.’s comparable sales decreased 3.6% vs. a 1.4% increase in the prior year. In the current environment discounting is the only way to generate incremental traffic and management has no intention of “trying to compete with free because, no matter what anyone says, you can't make that up on volume."

At the same time, management wants to blame rain in Southern California as the reason for the sluggish trends at the Carl’s Jr. concept. The fact is that rain may have had an impact on the current period sales trends, but that should not be mistaken for 5 months of decelerating trends at Carl’s Jr.

It’s hard to single out a reason why Carl’s Jr. is slipping, but value for the money is going to be the one that appears at the top of the list. Carl’s Jr. has always been more expensive than any of the other “big three” competitors and the focus on value by its competition is a major issue for the company, particularly in the current environment. Holding the line on value becomes harder to do as the decline in traffic trends begin to accelerate.

Trading at 4.3x NTM EV/EBITDA, CKR is one of the cheapest stocks we follow and deservedly so. In addition to the core concept losing market share to the “big three,” management at CKE is one of the least shareholder-friendly management teams in the restaurant industry.