Why CKE postponed its IPO
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In earnings reports in recent weeks, several public companies said ground beef prices were expected to be favorable for the rest of this year as cattle are sent to slaughter because they are becoming too expensive to feed with the drought in the Midwest putting increasing pressure on corn prices. The long-term result, however, will be even higher beef prices next year, as it takes time to rebuild herd counts.
Others said investors may simply have had enough of restaurant IPOs after a busy year so far. “The client base only has so many bullets to shoot at restaurant investments, and those bullets have been fired already,” said Lyon.
CKE’s planned IPO would have been the fifth this year, following those from Bloomin’ Brands, Chuy’s Holdings Inc., Del Frisco’s Restaurant Group and Ignite Restaurant Group.
Dunkin’ Brands Group Inc. also on Friday announced a secondary offering of 21.7 million shares by stockholders. Last year, Dunkin netted about $423 million with an IPO, selling 22.25 million shares for $19 per share, which was higher than the range initially set at $16 to $18 per share.
John Gordon, principal of Pacific Management Consulting Group, said CKE’s large debt load may also have scared off potential investors. CKE was acquired in 2010 by Apollo Management in a $700 million deal. The company was planning to use income from the IPO in part to reduce net debt of $654 million to a projected $590 million.
Since going private, Carl’s Jr. and Hardee’s have not been able to show strong signs of turnaround, as competitors Wendy’s, Burger King and Taco Bell have shown. CKE’s blended same-store sales rose 2.6 percent in the first quarter, which was “okay, nothing exciting,” Gordon said.
CKE has a growth story to tell, Gordon noted, with plans to grow overseas and into the as-yet underpenetrated Northeast. However, those factors were not enough to overcome the changing outlook for restaurant stocks, which looks very different today than it did in May, when CKE first announced its IPO plans.
“There’s no doubt things are looking worse now than they were in the spring,” he said.
However, he added, investor outlooks are cyclical. “Investor sentiments tend to bounce back and forth between quick service and casual dining,” said Gordon. “And when the economy softens, investors start favoring QSR again.”
The question remains when, if at all, the IPO may still happen, if market conditions improve. Company officials said they could not comment on potential timing.
The planned IPO was based on first-quarter numbers, and the company will likely have to re-file based on second-quarter results, which won’t be released until mid to late September.