California Pizza Kitchen, Inc. (CPKI), one of the leading casual dining restaurant chains, recently posted third quarter 2010 adjusted earnings of 23 cents per share, surpassing the Zacks Consensus Estimate of 19 cents, but dropped 4.2% from 24 cents in the prior-year quarter. The better-than-expected results were driven by positive comparable same store sales.
However, including charges for impairment, legal settlement and shutting down stores, the company reported a loss of $7.5 million, or 31 cents per share from a profit of $5.8 million, or 24 cents in the year-ago quarter.
The pizza restaurant chain stated that total revenue in the third quarter dropped 2.0% year over year to $164.5 million, but inched up slightly from the Zacks Consensus Estimate of $164.0 million.
Comparable-store sales rose for the first time in the last two years by 0.7% in the quarter, toward the higher end of the guidance range of negative 1.0% and positive 1.0%. The comparable store sales were driven by reintroduction of the thank-you card program during the quarter.
In order to revive its top-line growth and improve its comparable-store sales, California Pizza Kitchen plans to introduce new menu offerings. Moreover, to expand its margin, the company will also make efforts to reduce costs.
California Pizza Kitchen said that restaurant sales rose slightly by 0.1% to $161.3 million and royalties from the licensing agreement dropped 29.6% to $1.8 million, partially offset by international franchise revenues that soared 38.7% to $649,000 and domestic franchise revenues upped 17.5% to $839,000.
The operating income of the company decreased 8.0% year over year to $17.1 million, and operating margin contracted 90 basis points to 10.4% as pre-opening costs were up, partially offset by a decline in general and administrative costs.
Financial Position
The company ended the quarter with cash and cash equivalents of $4.8 million and shareholders’ equity of $193.2 million. As of October 3, 2010, California Pizza Kitchen’s total debt liability was nil.
The company is also focused on optimizing shareholder value by increasing its free cash flow and returning to the shareholders in the form of dividend or share repurchase.
Outlook
The casual dining operator now expects its fourth quarter 2010 earnings in the range of net loss of one cent a share to a profit of one cent per share, compared with the current Zacks Consensus Estimate of 15 cents. The earnings estimate includes an estimated cost of 6 cents per share from higher taxes. Comparable-store sales are projected between negative 1.0% to flat year over year in fourth quarter 2010.
Management expects to open two international full service franchised restaurants and three company owned full service restaurants in fourth quarter 2010.
Our Take
The company reported positive comparable same store sales during the quarter, but does not expect to continue the trend in the next quarter. The earning estimates projection for the fourth quarter of 2010 is also far below the Zacks Consensus Estimate. This was considerably disappointing; as a result, share price closed at $16.37 on Thursday, down 24 cents from the previous day price. Thus, estimates for the next quarter are most likely to decline in the coming days.
Founded in 1985, California Pizza Kitchen currently operates, licenses or franchises 264 restaurants, of which 208 are company-owned and 56 are either franchised or licensed.
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