Carls/Hardees: First Update after Merger

I listened in today on CKR Restaurants' first post-merger briefing, after its acquisition by Apollo in July . It was not an earnings call per se, but a nice update nonetheless.

There were a mix of good things and the usual issues with private company ownership of higher debt and related concerns. CKR is privately owned and is now highly levered as the SEC 10Q so notes.  I am still going through the 10Q, but here are some highlights:

• Carl’s same store sales were still negative, at minus 7.4%, but Hardees was notably positive, at plus 6.8%. Hardees ran positive average check and customer traffic and is featuring hand breaded Chicken Breast in unit and on TV. Carl’s is working towards implementing the same.
• Hardee’s has been positive sales now for six accounting periods. We wonder if this is an indicator that the core CKR strategy of  low discounting/ don’t feature dollar items on TV, rollout popular priced or substantial new products strategy is now  working.
• Combined restaurant level EBITDA margin still strong at 17.9% last month. The impact of rising food commodities did clip margins about 120 points, however.
• The new owners took out fees and expenses of $10M, already.
• Management tone and marketing  thrust  seems steady as pre-merger.  No refranchising plans or asset sales on the horizon.
• CKR sold its in house food distribution arm (supposedly low profit) to MBM (Meadowbrook) and booked a gain of $3.4M.  CEO Puzder noted company stores would have a slightly lower distribution fee versus what was internally charged earlier.
• CKR debt is now much higher, with $600M in senior unsecured debt at 11.375%, and bank debt at $590M versus $266M prior to merger.
• They did not reveal bank loan covenant ratios but noted they were in compliance, currently.
• The company now has a CAPEX (capital spending) cap of $100M or about 8.5% of the asset base. Their 2010 forecast is for $65 to $75M, under the cap.

It would be great to hear what franchisees think of the merger to date.