Cke Restaurants (NYSE:CKR)
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Restaurant executives warned that requiring employers to provide health insurance to employees will result in higher menu prices and stifle growth.

"It will be inflationary at the very least, and completely shake out the business at its worst," Rick Rosenfield, co-founder and co-chief executive of California Pizza Kitchen Inc. (CPKI), said Wednesday at an RBC Capital Markets consumer conference.

California Pizza Kitchen already has higher prices at restaurants in San Francisco, which requires companies, including restaurants, to offer health insurance to employees.

Higher prices could turn off customers at a time when restaurants are struggling grow sales in the midst of the worst operating environment in decades.

Restaurants may also have to divert money earmarked for opening stores or other growth plans toward paying higher health insurance costs.

"It's not like we have a pot of money in the closet" to pay for health insurance, said Michael Murphy, president of CKE Restaurants Inc. (CKR), which owns the Hardee's and Carl's Jr. fast food chains.

Murphy said that another legislative issue, menu-labeling, is "somewhat discriminatory" in that proposed legislation only requires chains with more than 20 outlets to post calorie counts.

Executives said overall real estate costs are favorable, as more sites open up and more restaurants close than open.

They also expect consumers to eventually shake off habits brought on by the recession, although some chains may have hurt their images with rampant discounting.

"I think it's long-term destructive for those guys," Kent Taylor, founder and chairman of Texas Roadhouse Inc. (TXRH), said.

Shares of CKE Restaurants, which reports fiscal second-quarter earnings later Wednesday, rose 28 cents, or 2.6%, in recent trading to $11.09. Texas Roadhouse shares added 20 cents, or 1.8%, to $11.48, while California Pizza Kitchen shares rose slightly to $14.64.

-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com