Following the release of the third-quarter 2013 results on Oct
31, Irving, Texas-based restaurant and entertainment center
CEC Entertainment Inc.
) share price has declined 1.8%.
CEC Entertainment's third-quarter earnings of 43 cents per
share missed the Zacks Consensus Estimate of 49 cents by 12.2%
and the year-ago quarter's earnings of 45 cents by 4.4%. Earnings
in the quarter were hurt by lower top line and reduced operating
Total revenue decreased 0.4% year over year to nearly $196
million in the third quarter, in line with the Zacks Consensus
Estimate. The year-over-year decline in revenues was due to a
3.6% drop in food and beverage sales and 2.1% fall in comparable
store sales (comps), offset somewhat by incremental revenues from
seven new stores entering the system since the end of the third
quarter of 2012.
Comps in the quarter were mostly hurt by an 11% decrease in
birthday party sales. Further, an uncertain economic environment
was also held responsible for such lower comps. Sales at
company-operated restaurants dipped 0.4% year over year to $194.8
million, while franchise fees and royalties increased 20.2% to
Total cost of food, beverage, entertainment and merchandise as
a percentage of revenues declined 120 basis points (bps) year
over year to 14.3%, gaining from the company's cost-saving
efforts and better pricing methods. A 20% reduction in dough
usage owing to the launch of new crispy pizza crust also helped
lower the food costs.
However, labor expenses as a percentage of revenues went up 80
bps year over year to 29.0% during the quarter as a result of
rise in labor hours, a higher average hourly wage rates and
increased performance bonuses. Advertising expense and general
and administrative expenses both as a percentage of revenues
increased 30 bps each to a respective 5.4% and 6.9%. Total
operating costs and expenses increased 60 bps year over year to
93.2%, which dragged the operating margin down by 60 bps to
During the reported quarter, CEC opened five company-owned
stores and closed one. During the quarter, one franchisee was
opened while another was closed.
At the end of the third quarter of 2013, the company had 518
company-operated stores and 53 franchised stores. For 2013, the
company expects to open 13-14 company-owned stores. Additionally,
the company will relocate one store and shut down five stores,
thus restricting the net new openings to a range of 9-5.
CEC Entertainment is planning to unveil 12-15 stores which
will include three relocations and one acquisition.
CEC Entertainment projects that comps will be flat in
fourth-quarter 2013. Earnings per share are expected to be within
15 cents-19 cents.
Full-Year 2013 Outlook
In 2013, depreciation and amortization are expected to be flat
year over year. Advertising expense is projected to increase $6
million from the year-ago quarter.
The primary factors that affected CEC Entertainment's
third-quarter results were underperformance due to pressure on
the top and bottom lines as well as margins. The company's
continued efforts to increase traffic to enhance sales and comps
are yet to be fruitful.
Other Stocks to Consider
CEC Entertainment holds a Zacks Rank #4 (Sell). Some other
players in the restaurant industry which look attractive at
Red Robin Gourmet Burgers Inc.
Cracker Barrel Old Country Store, Inc.
Bob Evans Farms, Inc.
). While Red Robin holds a Zacks Rank #1 (Strong Buy), Cracker
Barrel and Bob Evans Farms carry a Zacks Rank #2 (Buy).
BOB EVANS FARMS (BOBE): Free Stock Analysis
CRACKER BARREL (CBRL): Free Stock Analysis
CEC ENTERTANMNT (CEC): Free Stock Analysis
RED ROBIN GOURM (RRGB): Free Stock Analysis
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