CEC Entertainment Inc.
) reported earnings of 45 cents per share in the third quarter of
2012, which lagged the Zacks Consensus Estimate of 50 cents.
Reported earnings were also below the prior-year earnings of 62
cents per share. The year-over-year decrease in the number of
weighted average diluted shares outstanding could not hinder the
Total revenue also tumbled 1.7% year over year to $196.6
million in the third quarter, which fell shy of the Zacks
Consensus Estimate of $198.0 million. The drop in revenue was due
to lower comparable store sales (down 2.3%), offset somewhat by
incremental revenues from six new stores entering the system,
since the end of the third quarter of 2011. Sales at
company-operated restaurants dipped 1.2% to $195.6 million, while
franchise fees and royalties plummeted 57.0% to $0.9 million.
The company's cost structure which includes cost of food,
beverage, entertainment and merchandise, decreased 30 basis
points (bps) year over year to 15.5% as a percentage of company
store sales. Depreciation and amortization expense, as a
percentage of company-store sales expanded 10 bps to 10.2%.
Labor expenses crept up 120 bps to 28.2% during the quarter as
a result of rise in labor hours and an increase in average hourly
wage rates. Store rent expenses and other operating expenses both
increased 10 bps each to a respective 10.0% and 17.1%.
Total operating costs and expenses increased 290 bps, which
dragged the operating margin down to 7.4% from 10.3%.
During the reporting quarter, CEC which operates and
franchises family dining and entertainment centers, opened two
company-owned stores and closed one. On the franchisee front,
there was only one opening in the quarter.
The company currently operates 511 company-operated stores and
51 franchised stores.
At quarter end, CEC's cash and cash equivalents were $18.7
million, while shareholders' equity stood at $146.4 million.
The eventual impact of super-storm Sandy has not yet been
incorporated into the company's accounts; hence it did not
provide any guidance for the fourth quarter of 2012.
However, CEC issued the guidance for fiscal 2013. For fiscal
2013, the company expects comparable sales growth to remain in
the range of 2%-3%. CEC expects diluted earnings per share in the
range of $2.80-$3.00 per share.
The key takeaways from CEC's third quarter earnings were
continued underperformance on top- and bottom- lines and margins
pressure. The suspension of fourth-quarter 2012 guidance to
include the impact of super-storm Sandy also limits visibility
for the coming months. Although the company continues to make
efforts to increase traffic to enhance sales and comps, its
initiatives are yet to be fruitful.
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 #3 Rank, which translates into a
short-term Hold 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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