California Pizza Kitchen, Inc. (Nasdaq: CPKI) today reported financial results for the third quarter ending October 3, 2010.
Highlights for the third quarter of 2010 relative to the third quarter of 2009 were as follows:
- Total revenues decreased 0.2% to $164.5 million
- Full service comparable restaurant sales increased 0.7%
- Non-GAAP net income of $5.7 million, or $0.23 per diluted share, excluding the effects of the non-cash impairment write-down of 10 full service restaurants, the proposed settlement of a class-action lawsuit, store closure costs and the related tax benefits (please refer to the reconciliation table).
- Net loss of $7.5 million, or negative $0.31 per diluted share, including the effects of the non-cash impairment write-down of 10 full service restaurants, the proposed settlement of a class-action lawsuit, store closure costs and the related tax benefits.
Rick Rosenfield and Larry Flax, co-CEOs of California Pizza Kitchen, stated, “Excluding the charges for impairment, legal settlement and store closures, we delivered a strong financial performance for our shareholders for the quarter, exceeding the top-end of our earnings guidance range by $0.04 per share. With our successfully executed Thank You Card Program, full service comparable restaurant sales were positive for the first time in more than two years. We also managed our labor, direct operating and occupancy costs which allowed us to drive non-GAAP net income compared to the prior year quarter.”
Rosenfield and Flax continued, “Looking ahead, we plan to drive traffic and comparable sales through menu innovation and by providing an exceptional dining experience for our guests. We are implementing strategies to further control expenses and identifying leverage opportunities to strengthen our full service platform. This in turn will drive growth in the key ancillary channels of franchise expansion and branded grocery products. We are focused on enhancing our brand equity and maximizing shareholder value by improving our free cash flow and return on invested capital both inside and outside the restaurants’ four walls.”
Average weekly sales for the Company’s 199 full service restaurants were $61,161 in the third quarter of 2010 compared to $60,945 in the same quarter last year.
During the third quarter, the Company opened full-service restaurants in Jacksonville, FL; Newark, DE; Northbrook, IL; and San Antonio, Texas. International franchise partners opened a full-service restaurant in Seoul, South Korea, the Company’s fourth location in the country, and the first full-service restaurant in India, located in Mumbai. A domestic franchise partner also opened a new quick-serve restaurant on the University of Southern California campus.
The Company also outlined its financial guidance for the fourth quarter of 2010 based on the following estimates and assumptions:
- Full service comparable restaurant sales between negative 1% and 0%
- Opening three Company-owned full service restaurants
- Opening two international franchised full service restaurants
- Opening one Company-owned full service restaurant in Shanghai, China
Earnings are estimated in the range of negative $0.01 to $0.01 per diluted share which includes an estimated negative $0.06 per diluted share impact from a high fourth quarter effective tax rate. The prior year fourth quarter also included an $0.11 per diluted share increase from one extra operating week (14 week compared to 13 week quarter).
The Company will host a conference call today at approximately 4:30 pm ET. A webcast of the conference call can be accessed at www.cpk.com.
California Pizza Kitchen, Inc., founded in 1985, is a leading casual dining chain featuring an imaginative line of hearth-baked pizzas, including the original BBQ Chicken Pizza, and a broad selection of distinctive pastas, salads, appetizers, soups, sandwiches and desserts. The average guest check is approximately $15.00. Of the chain’s 264 restaurants as of November 11, 2010, 208 are Company-owned and 56 operate under franchise or license agreements. CPK premium pizzas are available to sports and entertainment fans at three Southern California venues including Dodger Stadium, Angel Stadium of Anaheim and STAPLES Center. Included in the Company’s portfolio of concepts is LA Food Show Grill & Bar, which has locations in Manhattan Beach and Beverly Hills, California. The Company also has a licensing arrangement with Nestle S.A. to manufacture and distribute a line of California Pizza Kitchen premium frozen products. For more details, visit www.cpk.com.
This release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include projections of earnings, revenue or other financial items, statements of the plans, strategies and objectives of management for future operations, statements concerning proposed new products or developments, statements regarding future economic conditions or performance, statements of belief and statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “anticipate,” “guidance,” “forecast” and similar words.
This release includes measures that are not based on any standardized methodology prescribed by U.S. generally accepted accounting principles (“GAAP”) and are not necessarily comparable to similar measures presented by other companies. This includes non-GAAP earnings per diluted share or other information. The Company believes that this non-GAAP information is useful as an additional means for investors to evaluate the Company’s operating performance, when reviewed in conjunction with the Company’s GAAP financial statements. This amount is not determined in accordance with GAAP and therefore, should not be used exclusively in evaluating the Company’s business and operations.
Investors are cautioned that forward-looking statements are not guarantees of future performance and, therefore, undue reliance should not be placed on them. Our actual results may differ materially from the expectations referred to herein. Among the key factors that may have a direct bearing on our operating results, performance and financial condition are changing consumer preferences and demands, the execution of our expansion strategy, the continued availability of qualified employees and our management team, the maintenance of reasonable food and supply costs, our relationships with our distributors and numerous other matters discussed in the Company’s filings with the Securities and Exchange Commission. California Pizza Kitchen undertakes no obligation to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.
| Selected Unaudited Consolidated Financial and Operating Data | ||||||||||||||||
| (Dollars in thousands, except for per share and operating data) | ||||||||||||||||
| 13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
| October 3, | September 27, | October 3, | September 27, | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| Statement of Income: | ||||||||||||||||
| Revenues: | ||||||||||||||||
| Restaurant sales | $ | 161,295 | $ | 161,156 | $ | 475,990 | $ | 487,860 | ||||||||
| Royalties from licensing agreement | 1,760 | 2,501 | 4,230 | 5,425 | ||||||||||||
| Domestic franchise revenues | 839 | 714 | 2,323 | 2,039 | ||||||||||||
| International franchise revenues | 649 | 468 | 1,745 | 1,515 | ||||||||||||
| Total revenues | 164,543 | 164,839 | 484,288 | 496,839 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Food, beverage and paper supplies | 38,143 | 37,009 | 111,573 | 115,094 | ||||||||||||
| Labor | 60,472 | 60,929 | 179,151 | 184,608 | ||||||||||||
| Direct operating and occupancy | 35,402 | 35,819 | 107,089 | 106,633 | ||||||||||||
| Cost of sales | 134,017 | 133,757 | 397,813 | 406,335 | ||||||||||||
| General and administrative | 12,006 | 12,199 | 38,029 | 37,746 | ||||||||||||
| Pre-opening costs | 1,377 | 243 | 2,279 | 1,944 | ||||||||||||
| Operating income before depreciation and amortization, loss on impairment of property and equipment, store closure costs and litigation and settlement costs (1) | 17,143 | 18,640 | 46,167 | 50,814 | ||||||||||||
| Depreciation and amortization | 9,370 | 10,032 | 28,012 | 28,607 | ||||||||||||
| Loss on impairment of property and equipment | 18,701 | 28 | 18,701 | 119 | ||||||||||||
| Store closure costs | 592 | 185 | 1,058 | 185 | ||||||||||||
| Litigation and settlement costs | 5,736 | 418 | 6,505 | 979 | ||||||||||||
| Total costs and expenses | 181,799 | 156,862 | 492,397 | 475,915 | ||||||||||||
| Operating income (loss) | (17,256 | ) | 7,977 | (8,109 | ) | 20,924 | ||||||||||
| Interest income (expense), net | 8 | (166 | ) | (22 | ) | (663 | ) | |||||||||
| Income (loss) before income tax provision (benefit) | (17,248 | ) | 7,811 | (8,131 | ) | 20,261 | ||||||||||
| Income tax provision (benefit) | (9,710 | ) | 2,020 | (7,285 | ) | 5,780 | ||||||||||
| Net income (loss) | $ | (7,538 | ) | $ | 5,791 | $ | (846 | ) | $ | 14,481 | ||||||
| Net income (loss) per common share: | ||||||||||||||||
| Basic | $ | (0.31 | ) | $ | 0.24 | $ | (0.03 | ) | $ | 0.60 | ||||||
| Diluted | $ | (0.31 | ) | $ | 0.24 | $ | (0.03 | ) | $ | 0.60 | ||||||
| Shares used in computing net income (loss) per common share (in thousands): | ||||||||||||||||
| Basic | 24,578 | 24,123 | 24,453 | 24,029 | ||||||||||||
| Diluted (2) | 24,578 | 24,286 | 24,453 | 24,098 | ||||||||||||
| Operating Data: | ||||||||||||||||
| Locations open at end of period | 263 | 255 | 263 | 255 | ||||||||||||
| Company-owned full service restaurants open at end of period | 199 | 197 | 199 | 197 | ||||||||||||
| Average weekly company-owned full service restaurant sales | $ | 61,161 | $ | 60,945 | $ | 59,973 | $ | 62,141 | ||||||||
| 18-month comparable company-owned full service restaurant sales increase (decrease) | 0.7 | % | -8.0 | % | -2.6 | % | -6.9 | % | ||||||||
| (1) | This is a non-GAAP measure and is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similar measures presented by other companies. We believe this measure provides additional information to facilitate the comparison of our past and present financial results and provides an additional means for investors to evaluate business performance. However, use of this measure should not be construed as an indication that our future results will be unaffected by excluded items. | |
| (2) | For the 13 and 39 weeks ended October 3, 2010, stock options have been excluded from the shares used in the computation of net loss per diluted share because of their antidilutive effect. |
| 13 Weeks Ended | 39 Weeks Ended | |||||||
| October 3, | September 27, | October 3, | September 27, | |||||
| 2010 | 2009 | 2010 | 2009 | |||||
| Statement of Income Percentages (1): | ||||||||
| Revenues: | ||||||||
| Restaurant sales | 98.0% | 97.8% | 98.3% | 98.2% | ||||
| Royalties from licensing agreement | 1.1% | 1.5% | 0.9% | 1.1% | ||||
| Domestic franchise revenues | 0.5% | 0.4% | 0.5% | 0.4% | ||||
| International franchise revenues | 0.4% | 0.3% | 0.3% | 0.3% | ||||
| Total revenues | 100.0% | 100.0% | 100.0% | 100.0% | ||||
| Costs and expenses: | ||||||||
| Food, beverage and paper supplies | 23.6% | 23.0% | 23.5% | 23.6% | ||||
| Labor | 37.5% | 37.8% | 37.6% | 37.8% | ||||
| Direct operating and occupancy | 22.0% | 22.2% | 22.5% | 21.9% | ||||
| Cost of sales | 83.1% | 83.0% | 83.6% | 83.3% | ||||
| General and administrative | 7.3% | 7.4% | 7.9% | 7.6% | ||||
| Pre-opening costs | 0.8% | 0.1% | 0.5% | 0.4% | ||||
| Operating income before depreciation and amortization, impairment of property and equipment, store closure costs and litigation and settlement costs | 10.4% | 11.3% | 9.5% | 10.2% | ||||
| Depreciation and amortization | 5.7% | 6.1% | 5.8% | 5.8% | ||||
| Loss on impairment of property and equipment | 11.4% | 0.0% | 3.9% | 0.0% | ||||
| Store closure costs | 0.4% | 0.1% | 0.2% | 0.0% | ||||
| Litigation and settlement costs | 3.5% | 0.3% | 1.3% | 0.2% | ||||
| Total costs and expenses | 110.5% | 95.2% | 101.7% | 95.8% | ||||
| Operating income (loss) | -10.5% | 4.8% | -1.7% | 4.2% | ||||
| Other expense: | ||||||||
| Interest income (expense), net | 0.0% | -0.1% | 0.0% | -0.1% | ||||
| Income (loss) before income tax provision (benefit) | -10.5% | 4.7% | -1.7% | 4.1% | ||||
| Income tax provision (benefit) | -5.9% | 1.2% | -1.5% | 1.2% | ||||
| Net income (loss) | -4.6% | 3.5% | -0.2% | 2.9% | ||||
| (1) | Percentages are expressed as a percentage of total revenue except for cost of sales which is expressed as a percentage of restaurant sales. | ||
| Selected Consolidated Balance Sheet Information | ||||||
| (Dollars in thousands) | ||||||
| October 3, | January 3, | |||||
| 2010 | 2010 | |||||
| Cash and cash equivalents | $ | 4,842 | $ | 21,424 | ||
| Total assets | 327,856 | 350,258 | ||||
| Total debt | – | 22,300 | ||||
| Stockholders’ equity | 193,197 | 189,250 | ||||
| California Pizza Kitchen, Inc. | ||||||||
| Units Summary | ||||||||
| Total Units at | Total Units at | |||||||
| Third Quarter 2010 | July 4, 2010 | Opened | Closed | October 3, 2010 | ||||
| Company-owned full service domestic | 196 | 4 | 1 | 199 | ||||
| Company-owned ASAP domestic | 6 | – | – | 6 | ||||
| Company-owned LA Food Show | 2 | – | – | 2 | ||||
| Franchised domestic | 20 | – | – | 20 | ||||
| Franchised international | 29 | 2 | 1 | 30 | ||||
| Campus, sports & entertainment venues (seasonal) | 5 | 1 | – | 6 | ||||
| Total | 258 | 7 | 2 | 263 | ||||
| The following reconciliation of net income (loss) to non-GAAP net income is provided to assist the reader with understanding the financial impact of the non-cash impairment charges, proposed legal settlement and related costs and store closure costs during the quarter and year (unaudited, in thousands, except per share data): | ||||||||||||||||
| 13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
| October 3, | September 27, | October 3, | September 27, | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| Net income (loss) as reported | $ | (7,538 | ) | $ | 5,791 | $ | (846 | ) | $ | 14,481 | ||||||
| Impairment of property, plant and equipment | 18,701 | 28 | 18,701 | 119 | ||||||||||||
| Store closure costs | 592 | 185 | 1,058 | 185 | ||||||||||||
| Legal settlement and related costs | 5,254 | – | 5,254 | – | ||||||||||||
| Net change to income tax provision | (11,320 | ) | (102 | ) | (11,320 | ) | (102 | ) | ||||||||
| Net income excluding impairment charges, store closure costs and legal settlement and related costs | $ | 5,689 | $ | 5,902 | $ | 12,847 | $ | 14,683 | ||||||||
| Basic net income (loss) per common share: | ||||||||||||||||
| Net income (loss) as reported | $ | (0.31 | ) | $ | 0.24 | $ | (0.03 | ) | $ | 0.60 | ||||||
| Impairment of property, plant and equipment | 0.76 | – | 0.76 | – | ||||||||||||
| Store closure costs | 0.03 | – | 0.04 | 0.01 | ||||||||||||
| Legal settlement and related costs | 0.21 | – | 0.21 | – | ||||||||||||
| Net change to income tax provision | (0.46 | ) | – | (0.46 | ) | – | ||||||||||
| Basic net income excluding impairment charges, store closure costs and legal settlement and related costs | $ | 0.23 | $ | 0.24 | $ | 0.52 | $ | 0.61 | ||||||||
| Diluted net income (loss) per common share: | ||||||||||||||||
| Net income (loss) as reported | $ | (0.31 | ) | $ | 0.24 | $ | (0.03 | ) | $ | 0.60 | ||||||
| Impairment of property, plant and equipment | 0.75 | – | 0.75 | – | ||||||||||||
| Store closure costs | 0.03 | – | 0.04 | 0.01 | ||||||||||||
| Legal settlement and related costs | 0.21 | – | 0.21 | – | ||||||||||||
| Net change to income tax provision | (0.45 | ) | – | (0.45 | ) | – | ||||||||||
| Diluted net income excluding impairment charges, store closure costs and legal settlement and related costs | $ | 0.23 | $ | 0.24 | $ | 0.52 | $ | 0.61 | ||||||||
| Basic | 24,578 | 24,123 | 24,453 | 24,029 | ||||||||||||
| Diluted (1) | 24,889 | 24,286 | 24,842 | 24,098 | ||||||||||||
| (1) | For the 13 and 39 weeks ended October 3, 2010, stock options have been included in the calculation of non-GAAP net income per diluted share because their effect is no longer antidilutive. | ||