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BKC - PREMIUM QSR NOT WORKING

Some thoughts on BKC ahead of tomorrow's earnings release.

I have not been paying close attention to CKR, but the last 2 months for Carl’s Jr. sales trends are showing why management is selling the company.  On a 2-year average basis, the Carl’s Jr. Concept is one of the worst in QSR.  While management is focused on things other than the core business right now, the comments about CA are interesting. 

From today’ CKE release:

“However, Carl's Jr. same-store sales continued to be negatively impacted by the poor economic conditions and high unemployment rates in our core California market, which continued to climb during the month of March," said Andrew F. Puzder, chief executive officer. "We continue to focus on the excellent value-for-the money of our premium products and combo meals, and have several new initiatives in the works to improve same-store sales and increase market share." 

Outside of the California centric Carl’s Jr concept, Hardee’s posted a +0.3% same-store sales number for Period 3 FY11 which represents a +2% number in two years trends and a 20 bp sequential acceleration.

Recently, CAKE also referenced that unemployment moved higher in March for CA to 12.6% but, nevertheless, CAKE saw improved trends in CA with same-store sales turning positive. 

Our expectations for BKC US same-store sales in FY4Q are for 3-4%, which suggest an improvement in March.  The consensus $0.29 EPS is achievable but somewhat of a mute point for BKC as management already indicated EPS to lower than last year. 

At 7.6x EV/EBITDA, BKC represents good value relative to the other major players in QSR, but lack of strategic market position puts the concept and company in a difficult position.   

Howard Penney

Managing Director