CKE Restaurants' Solid Q1 Ignites Shares

CKE Restaurants (CKR) had been in a recent funk. Its shares had lost more than half their value, while a lackluster economy wasn't helping matters either. Then, CKR suddenly got its "mojo" back, as its shares vaulted nearly 40% in the past three months, thanks to a stellar first quarter earnings blowout. CKR delivered a staggering 35% increase in earnings from $0.23 to $0.31 despite a 6% drop in revenues, handily beating analysts' expectations of $0.27. The sales dip was attributable to a shift from company owned stores to franchised locations. Despite the burger purveyor's operating income being virtually unchanged, a 20% reduction in its outstanding shares proved to be the catalyst behind the impressive earnings gain.

A closer look: The company is weathering the storm of higher fuel and commodity prices practically unscathed, as its cost containment program seems to be on track. CKR's food and packaging costs dropped 6%, while payroll was also trimmed 6%. Selling, general and administrative charges eased 3%, occupancy expense compressed 4%, advertising fell 7% and depreciation was 5% lower. Although all of these cost components experienced a net drop on the income statement, they were all marginally higher as a percentage of sales. First quarter earnings were also negatively impacted due to a $1.1 million facility action charge versus a $250,000 gain, but were positively impacted by the company's 410 basis point drop in its income tax rate from 40.3% to 36.2%.