California Pizza Kitchen, Inc. (CPKI) recently posted fourth-quarter 2010 adjusted earnings of 17 cents per share, above the Zacks Consensus Estimate of 9 cents.
On a GAAP basis, including litigation and settlement costs, store closure cost, expenses related to review of strategic alternatives and tax benefit, California Pizza Kitchen recorded earnings of 2 cents compared with the loss of 41 cents in the year-ago quarter.
The pizza restaurant chain said that total revenues for the fourth quarter dropped 5.9% year-over-year to $157.9 million, but inched up slightly from theZacks Consensus Estimate of $157.0 million. However, sales jumped 3.2% during the quarter, excluding the benefit of an additional week in the prior year quarter.
The company’s adjusted earnings per share for the full year were 69 cents. However, on a GAAP basis the company reported a loss of 2 cents in 2010 versus earnings of 19 cents in full fiscal 2009. Revenues were $642.2 million in full fiscal 2010, representing a year-over-year decline of 3.4%.
Inside the Headlines Numbers
Comparable-store sales fell 1.1% in the quarter, as bad weather conditions and holiday shift adversely impacted same restaurant sales growth by 140 basis points.
In order to revive its top-line growth and improve its comparable-store sales, California Pizza Kitchen plans to introduce new menu offerings and create brand awareness. Moreover, to expand margin, the company continues to focus on cost savings.
California Pizza Kitchen said that restaurant sales tumbled 6.0% to $154.6 million and royalties from the licensing agreement dropped 18.2% to $1.9 million, partially offset by international franchise revenues that rose 20.3% to $0.8 million and domestic franchise revenues leaped 16.9% to $0.7 million.
The restaurant operating margin contracted 90 basis points (bps) to 17.4%, due to the 20-bp rise in food, beverage and paper supplies cost, 140-bp upside in direct operating and occupancy expense, partially offset by a 70-bp plunge in labor cost.
Financial Position
The company ended the year with cash and cash equivalents of $21.2 million and shareholders’ equity of $194.4 million. As of January 2, 2011, 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 the same to shareholders in the form of dividend or share repurchase.
Store Update
During the quarter, California Pizza Kitchen opened one company (net) owned full service domestic restaurant and 1 company owned full service international restaurant in China. California Pizza Kitchen also opened two franchised international restaurants in Mexico and Dubai.
Management expects to open two international full-service franchised restaurants and one company-owned full service restaurant in first-quarter 2011.
Outlook
The casual dining operator expects first-quarter 2011 earnings in the range of 3 cents to 5 cents per share, in line with the current Zacks Consensus Estimate of 4 cents. Comparable-store sales are forecasted between negative 1.0% to negative 2.0% in first-quarter 2011.
Our Take
The company’s comparable restaurant sales during the quarter were negative and it expects the trend to continue in the next quarter. Moreover, California Pizza Kitchen’s earnings outlook for the first quarter of 2011 seems to be conservative as it is below the Zacks Consensus Estimate of 11 cents, estimated 7 days ago. Thus, estimates for the next quarter are most likely to decline in the coming days.
Estimates have not budged in the last 7 days for 2011 and 2012, implying that the analysts do not see any meaningful catalyst for the time being. The Zacks Consensus Estimates for 2011 and 2012 are earnings of 71 cents per share and 85 cents, respectively.
One of California Pizza Kitchen’s primary competitors, Brinker International Inc. (EAT) reported second quarter 2011 adjusted EPS of 38 cents, surpassing the Zacks Consensus Estimate of 32 cents. The upside in earnings was driven by continued margin expansion at Chili’s and top-line growth at Maggiano’s.
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