CEC Entertainment Inc.
) reported earnings of 23 cents per share in the second quarter of
2012, lagging the Zacks Consensus Estimate of 37 cents. Reported
earnings were also below the prior-year earnings of 34 cents per
Total revenue also tumbled 2.0% year over year to $182.4 million
in the second quarter, primarily due to lower comparable store
sales (down 2.4%). Sales at company-operated restaurants dipped
2.2% to $181.2 million, while franchise fees and royalties
increased 24.4% to $1.3 million.
The company's cost structure which includes cost of food,
beverage, entertainment and merchandise, decreased 30 basis points
(bps) year over year to 15.6% as a percentage of company store
sales. Benefiting from the decrease in certain commodity costs and
pricing changes, Depreciation and amortization expense, as a
percentage of company-store sales, contracted 80 bps to 10.5%.
However, labor expenses nudged up 130 bps to 29.5% during the
quarter as a result of rise in labor hours and a 0.7% increase in
average hourly wage rates. Store rent expense, increased 60 bps to
10.5%. Other store operating expenses spiked 60 bps to $30.7
Moreover, general and administrative expenses, as a percentage
of revenue, inched up 10 bps to 7.2%, but fell 1.2% to $13.1
million from the prior-year quarter. Advertising expense also
declined 40 bps as a percent of total revenue to 4.4%.
Total operating costs and expenses increased 230 bps, which
dragged the operating margin down to 4.7% from 7.0%.
During the reporting quarter, CEC opened 5 company-owned stores
and closed 3. There was no franchised store opening in the
The company currently operates 510 company-operated stores and
50 franchised stores.
Management plans to open 12-15 company-owned stores, including
approximately three relocations and one franchise acquisition.
At quarter end, CEC's cash and cash equivalents were $17.4
million, while shareholders' equity stood at $139.8 million.
For 2012, the company expects capital expenditure to be $88.0
million down from our prior estimate of $94 million to $96
For fiscal 2012, CEC trimmed its earnings per share guidance
from the range of $3.00-$3.15 to $2.65-$2.75. CEC anticipates
average block cheese prices to remain in the range of $1.50 to
$1.70 per pound.
CEC, which operates and franchises family dining and
entertainment centers, exited the first half of 2012 on a
disappointing note, resulting in a lower outlook for the remaining
year. Despite a lower outlook, the company continues to make
efforts to increase sales and comps but is not able to drive
traffic. However, management remains keen on international
exposure. In the back drop of an uncertain economic scenario, unit
expansion in both domestic and international markets and improving
returns to shareholders are favorable for the stock.
CEC, which competes with
), currently, retains a Zacks #4 Rank, which translates into a
short-term Sell rating. We are maintaining our long-term Neutral
recommendation on the stock.
CEC ENTERTANMNT (CEC): Free Stock Analysis
COSI INC (COSI): Free Stock Analysis Report
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