Texas-based CEC Entertainment Inc. (CEC), which operates and franchises family dining and entertainment centers, reported third quarter 2010 adjusted earnings of 65 cents per share, which surpassed the Zacks Consensus Estimate by 4 cents and the prior-year quarter’s earnings of 55 cents. Including an unfavorable one-time impact of asset impairment charge, the company earned 60 cents in the quarter under review.
Total revenue spiked up 4.7% year over year to $207.1 million, primarily due to acceleration in comparable store sales, which upped 3.8%. Sales at company-operated restaurants rose 4.7% to $206.2 million and franchise fees and royalties grew 5.2% to $0.9 million.
Turning to the cost structure, cost of food and beverage as a percentage of food and beverage sales fell 70 basis points (bps) to 22.3% and labor expense as a percentage of company store sales dipped 70 bps to 27.0% during the quarter.
Depreciation and amortization expense nudged up 3.5% to $19.9 million on account of the ongoing capital investment initiatives taken at stores. Rent expense upped 4.2% to $17.7 million due to a rise in leased stores, owing to new store development. As a result, the company’s operating margin contracted 30 basis points year over year to 11.5%.
Store Update
At quarter end, CEC owned 500 company-operated stores and 46 franchised stores. In more than 2 and half years, the company has added 14 new company stores and improvised over 450 stores in the form of store expansions, major remodels and game enhancements.
For fourth quarter 2010, the company expects to open 6 to 8 company-owned stores, including 1 or 2 franchise acquisitions and 1 relocation.
Financials
At quarter end, CEC’s cash and cash equivalents were $18.7 million, while its outstanding debt stood at $366.4 million. During the quarter, cash provided by operating activities was $36.9 million and capital expenditure was $27.6 million. CEC repurchased around 1.9 million shares in the first three quarters of 2010 for $67 million.
For the fourth quarter of 2010, the company expects capital expenditure in a range of $32.0 million to $34.0 million and in the range of $93.0 million to $97.0 million for fiscal 2011.
Outlook
For the fourth quarter of 2010, CEC expects earnings per share in a range of 17 cents to 19 cents and same store sales to be up 2.0% to 3.0%. For fiscal 2011, CEC projects its earnings in a range of $2.93–$3.03. The Zacks Consensus Estimates for fourth quarter 2010 is 18 cents and for fiscal 2011 is $3.00.
Our Take
We expect the estimates to go up in the coming days, provided the company report better-than-expected results and gave positive guidance.
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