California Pizza Kitchen Inc. (CPKI), a leading casual dining restaurant chain, is slated to release its third quarter 2010 results on Thursday, November 11, after market close. The current Zacks Consensus Estimate for the third quarter is 19 cents, representing an annualized negative growth of 22.1%.
With respect to earnings surprises, California Pizza has matched the Zacks Consensus Estimate three times and has outperformed it once in the trailing four quarters. The average earnings surprise was a positive 4.35%. This implies that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.
Previous Quarter Performance
California Pizza Kitchen posted second quarter 2010 earnings of 17 cents per share, down 32.0% from 25 cents in the prior-year quarter.
Total revenue in the second quarter plunged 4.6% year over year to $163.1 million, surpassing the Zacks Consensus Estimate of $162.0 million.
Comparable-store sales fell 5.9% in the quarter, lower than the year-ago quarter, but fared better than the guidance range of negative 6% to negative 7%.
In the second quarter, California Pizza Kitchen experienced a shortfall in its comparable store sales due to the absence of the “Thank You” Card promotion that drove sales in the second quarter of fiscal 2009.
Outlook
The casual dining operator now expects its third quarter earnings in the range of 17 cents to 19 cents per share. Comparable-store sales are projected between negative 1.0% and positive 1.0% in the third quarter.
The company remains on track to open two international full service franchised restaurants, one domestic franchised restaurant and four company owned full service restaurants in third quarter 2010.
Estimate Revision Trend
Estimates have not budged in the last 30 days, implying that the analysts do not see any meaningful catalyst for the time being. The current Zacks Consensus Estimate is 61 cents for 2010, reflecting a year-over-year negative growth of 20.3% and 72 cents for 2011, reflecting a year-over-year growth of 17.4%.
Agreement of Estimate Revisions
There has been no movement in estimates by the analysts regarding their outlook for both third and fourth quarter of 2010 as well as for 2010 and 2011 on California Pizza Kitchen’s earnings, over the last 30 days, due to the lack of any meaningful catalyst to drive the estimates upward or downward.
Magnitude of Estimate Revisions
There has been no change in the last 90 days in the earnings estimate of 19 cents, 61 cents and 72 cents for the third quarter, fiscal 2010 and 2011, respectively, as seen from the magnitude of the Consensus Estimate trend. Therefore, the analysts expect the company to report in line.
Our Take
We expect California Pizza Kitchen to provide third quarter earnings in line with the Zacks Consensus Estimate.
California Pizza Kitchen has implemented several sales-building programs to revive its top-line growth and falling comparable-store sales. These initiatives include new menu offerings such as Small Cravings menu, a new wine list featuring over 30 distinctive wines, a centralized Call Center to serve customers’ off-premise dining orders, as well as a catering program.
The company also intends to focus on operational efficiencies in order to drive restaurant margins. The financial condition of the company is also sound with debt free balance sheet.
We remain cautious on the stock as comparable-store sales and traffic have sagged, given that budget-constrained consumers are trading down to lower-priced dining options. Additionally, competition among casual dining restaurants is expected to remain fierce with respect to price, service, location and concept in order to drive traffic, which may adversely affect California Pizza Kitchen’s restaurant operating margins and profits.
Accordingly, we have a Zacks #3 Rank, (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the stock.
One of California Pizza Kitchen’s primary competitors, Cheesecake Factory Inc. (CAKE) has reported third quarter 2010 earnings of 37 cents per share, which surpassed the Zacks Consensus Estimate of 34 cents. The better-than-expected results were driven by comparable-store sales growth, higher traffic and effective cost management.
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