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August 6, 2010
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Texas based CEC Entertainment Inc. (CEC), which operates and franchises family dining and entertainment centers, reported second-quarter 2010 adjusted earnings of 35 cents per share, which came in well below the Zacks Consensus Estimate of 45 cents and the prior-year quarter’s earnings of 39 cents. Including an unfavorable one-time impact of tax adjustment, the company earned 22 cents in the quarter under review.
Total revenue dropped 2.1% year over year to $181 million and lagged the Zacks Consensus Estimate of $190 million primarily due to deceleration in comparable store sales. Results in the quarter were mainly hurt by the reduction of discounts on many of its coupon offers in an economy marked with a higher unemployment rate and lower consumer confidence.
Behind the Headline
Same-week comparable store sales fell 2.2%. Apart from the adverse impact of reducing coupon discounts, the Gulf of Mexico oil spill also remained a drag on sales, most specifically in the Southeastern part of the country. Same store sales, on a same-week basis, in the second quarter were negative 10.2%, 9.9% and 3.0%, respectively, in Tampa, Orlando and Miami versus a corresponding positive 9.4%, 2.6% and 11.9% experienced in the first quarter 2010.
Turning to the cost structure, cost of food and beverage as a percentage of food and beverage sales fell 20 basis points (bps) to 22.4% in the quarter offset somewhat by increased cheese prices.
Labor expense as a percentage of company store sales rose 20 bps year over year to 28.7% during the quarter, mainly due to higher compensation claims, unemployment taxes and other benefits as well as a 3.7% increase in the average hourly wage rates, which was partially mitigated by improved labor productivity.
Depreciation and amortization expense nudged up 4.2% to $19.8 million on account of the ongoing capital investment initiatives taken at stores. Rent expense upped 60 basis points due to a rise in leased stores owing to new store development. As a consequence, company store operating income declined 110 basis points year over year to 18.7%.
Store Update
At quarter end, CEC owned 498 company-operated stores and 48 franchised stores.
Financials
At quarter end, CEC’s total cash balances were $14.6 million, while its outstanding debt stood at $341.5 million. In the second quarter, cash provided by operating activities was $9.2 million and capital expenditure was $22.1 million. CEC repurchased around 468,000 shares in the quarter for $18.6 million at an average cost of $39.83.
Outlook
For fiscal 2010, CEC reduced its earnings per share expectation from $2.70–$2.80 to $2.52–$2.62. CEC expects same store sales to be flat to up 2% for the second half of 2010.
Read the full analyst report on "CEC"
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