CEC Entertainment Inc.
) adjusted earnings of 8 cents per share in the fourth quarter of
2012 missed the Zacks Consensus Estimate by 11.1% and the
year-ago earnings by 60%. The downfall in earnings can be
attributed to lower revenues coupled with higher costs.
On a reported basis (including asset impairment charges), loss
per share was 3 cents in the fourth quarter of 2012 compared to
earnings per share 15 cents in the year-ago period.
Total revenues tumbled 0.4% year over year to $177.8 million
in the fourth quarter, which fell shy of the Zacks Consensus
Estimate of $180.0 million. The drop in revenues was due to lower
comparable store sales (down 2.2%).
The company's cost structure, which includes cost of food,
beverage, entertainment and merchandise, increased 10 basis
points (bps) year over year to 16.2% as a percentage of company
store sales, mainly due to an increase in cheese prices. Also, an
increase in depreciation and amortization expense, labor expenses
and other operating expenses led to a 110 bps contraction in
restaurant margin to 14.6%.
Earnings per share decreased 14.2% to $2.47 in 2012 despite a
benefit of 17 cents from share repurchase. Earnings per share
missed the Zacks Consensus Estimate by 10.2%. Total revenues also
fell 2.2% to $803.5 million owing to a 2.9% plunge in comps.
Revenues also fell shy of the Zacks Consensus Estimate by
During the reported quarter, CEC opened 5 company-owned stores
and closed 2. On the franchisee front, there was no opening or
closure in the quarter.
At the end of 2012, the company had 514 company-operated
stores and 51 franchised stores. For 2013, the company expects to
open 15 new company-owned stores and relocate one store.
For fiscal 2013, the company expects comparable sales growth
to remain in the range of 1%-2%, down from the prior expectation
Uncertainty over the payroll tax holiday and rising gasoline
prices compelled CEC to reduce the comps guidance. Through week
seven of 2013, comparable store sales have already decreased
CEC expects earnings per share in the range of $2.70-$2.85,
down from the prior expectation of $2.80-$3.00.
The key takeaways from CEC's fourth quarter earnings were
continued underperformance on top- and bottom- lines and margins
pressure. The company has been missing the Zacks Consensus
Estimate on both lines for the past two quarters.
Even in the first half of 2012, its performance was not
satisfactory. The reduction in 2013 guidance to reflect the
elimination of payroll tax holiday and increased gasoline prices
also limits visibility for the coming months.
Yet another downward trend in comps for the first quarter of
2013 also evokes pessimism over the stock. Although the company
continues to make efforts to increase traffic to enhance sales
and comps, its initiatives are yet to attain fruition.
CEC currently retains a Zacks Rank #4 (Sell). Others players
in the same industry, which look attractive at current levels
Red Robin Gourmet Burgers Inc.
) carrying a Zacks Rank #1 (Strong Buy) and
AFC Enterprises Inc.
Burger King Worldwide Inc.
) carrying a Zacks Rank #2 (Buy).
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