CEC Entertainment Franchise Reports Financial Results for the Second Quarter of Fiscal 2010

IRVING, Texas, Aug 05, 2010 (BUSINESS WIRE) -- CEC Entertainment, Inc. (NYSE: CEC) today announced its financial results for the second quarter ended July 4, 2010. Total quarterly revenues decreased 2.1% to $181.0 million during the second quarter of 2010 from total quarterly revenues of $184.8 million in the second quarter of 2009. Second quarter 2010 comparable store sales on a same calendar week basis (comparing weeks 14 through 26 of fiscal year 2010 to weeks 15 through 27 of fiscal year 2009) decreased 2.2%.

Net earnings for the second quarter ended July 4, 2010, were $4.8 million compared to net earnings of $9.0 million in the second quarter of 2009. Diluted earnings per share decreased to $0.22 for the second quarter of 2010, compared to $0.39 in the second quarter of 2009. A tax adjustment was recorded during the second quarter of 2010 that unfavorably impacted diluted earnings per share by $0.13. Diluted earnings per share between the two quarters was impacted by the Company's repurchase of approximately 2.7 million shares of its common stock since the beginning of the second quarter of 2009.

For the first six months of 2010, total revenues decreased 1.3% to $427.3 million compared to total revenues of $432.9 million in the first six months of 2009. Comparable store sales for the first six months of 2010 on a same calendar week basis (comparing weeks 1 through 26 of fiscal year 2010 to weeks 2 through 27 of fiscal year 2009) decreased 0.5%. Total reported revenues for the first six months of 2010 were impacted by one additional operating week in the Company's 2009 fiscal year which caused the seasonally strong first week of the 2010 calendar year to shift into the fourth fiscal quarter of 2009 instead of in the first fiscal quarter of 2010.

Net earnings for the first six months of 2010 were $38.6 million compared to net earnings of $43.0 million in the first six months of 2009. Diluted earnings per share decreased to $1.77 for the first six months of 2010, compared to $1.86 in the first six months of 2009, and was impacted by the $0.13 tax adjustment recorded during the second quarter of 2010. Diluted earnings per share between the two periods was also impacted by the Company's repurchase of approximately 2.7 million shares of its common stock since the beginning of the first quarter of 2009.

Michael Magusiak, President and Chief Executive Officer, stated that, "I am very disappointed with the 2.2% decrease in same week comparable store sales during the second quarter. I believe there were a number of factors that accounted for our weak sales performance, including the reduction of discounts in many of our coupon offers, an economic slowdown in June, and very strong box office receipts for kids' and family movies. Certain coupon strategies have already been modified in July. In addition, on July 17, we began airing a national television commercial featuring a $9.99 summer special large cheese pizza. I believe that the modification of some of these sales strategies in July has contributed to a same week comparable sales increase of 2.1% during the first four weeks of the third quarter."

Magusiak further stated, "Considering the current economic environment with unemployment rates near 10%, I remain cautious about our sales outlook. However, despite my disappointment in the second quarter, we have a solid strategic plan and a business that continues to generate significant free cash flow. We intend to execute our sales and growth strategies, including the enhancement of our coupon offers, and expect positive comparable store sales in the second half of 2010."

Business Outlook:

Based on its current estimates, the Company is projecting fiscal year 2010 diluted earnings per share to be in a range of $2.52 to $2.62. This guidance incorporates the following assumptions:

  • comparable store sales for the last six months of the year, on a calendar week basis, flat to up 2.0%;
  • eight additional Company-owned stores, including two franchise acquisitions, during the last six months of the year;
  • average cheddar block prices in a range of $1.57 to $1.65 per pound for the second half of 2010;
  • fiscal year 2010 depreciation and rent expense will grow 4% and 3%, respectively;
  • fiscal year 2010 advertising expense as a percentage of total revenue will decrease approximately 0.2 percentage points;
  • effective tax rate of approximately 38.0% for the second half of 2010;
  • total fiscal year 2010 capital expenditures will range from $100.0 million to $103.0 million;
  • intent to repurchase Company common stock on an opportunistic basis.

Second Quarter 2010 Conference Call:

The Company will host a conference call Thursday, August 5, 2010, at 3:30 p.m. Central Time to discuss its second quarter 2010 financial results and outlook for the 2010 fiscal year. A live webcast of the call (listen only) can be accessed through the Company's website, www.chuckecheese.com. Shortly after its conclusion, a replay of the call will be available on the website through Friday, September 24, 2010.

Non-GAAP Financial Measures:

The Company reports and discusses its operating results using financial measures consistent with generally accepted accounting principles ("GAAP"). From time to time in the course of financial presentations, earnings conference calls or otherwise, the Company may disclose certain non-GAAP financial measures such as Free Cash Flow and diluted earnings per share excluding the benefit of the extra week in fiscal year 2009. The non-GAAP financial measures presented in this earnings release should not be viewed as alternatives or substitutes for the Company's reported GAAP results.

The Company believes that Free Cash Flow provides useful information to the Company, investors and other interested parties about the amount of cash generated by the business that, after the acquisition of property and equipment, can be used for other strategic opportunities, including servicing debt, funding additional capital expenditures and making investments in the business. It should not be inferred that the entire Free Cash Flow amount is available for discretionary expenditures. A reconciliation of the most directly comparable GAAP financial measure to Free Cash Flow is set forth in a table accompanying this release. Free Cash Flow as defined herein may differ from similarly titled measures presented by other companies.

The Company believes that presenting fiscal year 2009 diluted earnings per share excluding the estimated benefit of the extra week provides useful information to the Company, investors and other interested parties about the Company's year-over-year results and projected growth. The Company believes that an understanding of the impact of the 53rd operating week in fiscal 2009 on diluted earnings per share provides a more meaningful understanding of the Company's performance because the periods being compared consist of a different number of weeks. A reconciliation of reported diluted earnings per share to diluted earnings per share excluding the estimated impact of the 53rd week is set forth in a table accompanying this release.

The Company believes that presenting estimated diluted earnings per share for the full fiscal year 2010 excluding the impact of second quarter 2010 unfavorable tax charges provides useful information to the Company, investors and other interested parties about the Company's year-over-year results and projected growth. The Company believes that an understanding of the impact of the second quarter 2010 unfavorable tax charges on estimated diluted earnings per share for the full fiscal year 2010 provides a more meaningful understanding of the Company's performance because the impact of this matter may be considered an isolated occurrence. A reconciliation of estimated diluted earnings per share for the full fiscal year 2010 to estimated diluted earnings per share for the full fiscal year 2010 excluding the impact of second quarter 2010 unfavorable tax charges is set forth in a table accompanying this release.

About CEC Entertainment, Inc.:

Celebrating over 30 years of success as a place Where a Kid can be a Kid(R), CEC Entertainment, Inc. is a nationally recognized leader in family dining and entertainment. Chuck E. Cheese's stores feature musical and comic entertainment by robotic and animated characters, arcade-style and skill oriented games, video games, rides and other activities intended to appeal to families with children between the ages of two and 12 and offers a variety of pizzas, sandwiches, appetizers, a salad bar and desserts. The Company and its franchisees operate a system of 546 Chuck E. Cheese's stores located in 48 states (excluding Wyoming and Vermont) and six foreign countries or territories. Currently, 500 locations in the United States and Canada are owned and operated by the Company. For more information, see the Company's website at www.chuckecheese.com.

Forward-Looking Statements:

Certain statements in this press release, other than historical information, may be considered "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Statements that are not historical in nature, and which may be identified by the use of words such as "may," "should," "could," "believe," "predict," "potential," "continue," "plan," "intend," "expect," "anticipate," "future," "project," "estimate" and similar expressions (or the negative of such expressions) are forward-looking statements. Forward-looking statements are made based on management's current expectations and beliefs concerning future events and, therefore, involve a number of assumptions, risks and uncertainties, including the risk factors described in Item 1A "Risk Factors" of the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2010. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ from those anticipated, estimated or expected.

Factors that could cause actual results to differ materially from those contemplated by forward-looking statements include, but are not limited to:

  • Changes in consumer discretionary spending and general economic conditions;
  • Disruptions in the financial markets affecting the availability and cost of credit and our ability to maintain adequate insurance coverage;
  • Our ability to successfully implement our business development strategies;
  • Costs incurred in connection with our business development strategies;
  • Competition in both the restaurant and entertainment industries;
  • Loss of certain key personnel;
  • Increases in food, labor and other operating costs;
  • Changes in consumers' health, nutrition and dietary preferences;
  • Negative publicity concerning food quality, health, safety and other issues;
  • Continued existence or occurrence of certain public health issues;
  • Disruption of our commodity distribution system;
  • Our dependence on a few global providers for the procurement of games and rides;
  • Adverse affects of local conditions, events and natural disasters;
  • Fluctuations in our quarterly results of operations due to seasonality;
  • Conditions in foreign markets;
  • Risks in connection with owning and leasing real estate;
  • Our ability to adequately protect our trademarks or other proprietary rights;
  • Government regulations, litigation, product liability claims and product recalls;
  • Disruptions of our information technology systems;
  • Application of and changes in generally accepted accounting principles; and
  • Failure to establish, maintain and apply adequate internal control over financial reporting.

The forward-looking statements made in this press release relate only to events as of the date on which the statements were made. Except as may be required by law, the Company undertakes no obligation to update its forward-looking statements to reflect events and circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events.

                                                            CEC ENTERTAINMENT, INC.
                                                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                  (Unaudited)
                                                   (in thousands, except per share amounts)
                                                                        Three Months Ended                         Six Months Ended
                                                             ----------------------------------------  ----------------------------------------
                                                                   July 4,             June 28,              July 4,             June 28,
                                                                    2010                 2009                 2010                 2009
                                                             -------------------  -------------------  -------------------  -------------------
REVENUES
Food and beverage sales                                      $  89,064   49.2 %   $  91,123   49.3 %   $ 210,080   49.2 %   $ 219,602   50.7 %
Entertainment and merchandise sales                             91,065   50.3 %      92,676   50.2 %     215,249   50.4 %     211,257   48.8 %
                                                               -------  ----- -     -------  ----- -     -------  ----- -     -------  ----- -
   Company store sales                                         180,129   99.5 %     183,799   99.5 %     425,329   99.5 %     430,859   99.5 %
Franchise fees and royalties                                       857    0.5 %         996    0.5 %       1,984    0.5 %       2,069    0.5 %
                                                               -------  ----- -     -------  ----- -     -------  ----- -     -------  ----- -
   Total revenues                                              180,986  100.0 %     184,795  100.0 %     427,313  100.0 %     432,928  100.0 %
OPERATING COSTS AND EXPENSES
Company store operating costs:
   Cost of food and beverage (1)                                19,967   22.4 %      20,612   22.6 %      47,586   22.7 %      47,758   21.7 %
   Cost of entertainment and merchandise (2)                     7,736    8.5 %       8,360    9.0 %      17,786    8.3 %      19,124    9.1 %
                                                               -------  ----- -     -------  ----- -     -------  ----- -     -------  ----- -
   Cost of food, beverage, entertainment and merchandise(3)     27,703   15.4 %      28,972   15.8 %      65,372   15.4 %      66,882   15.5 %
   Labor expenses (3)                                           51,777   28.7 %      52,449   28.5 %     112,372   26.4 %     112,945   26.2 %
   Depreciation and amortization (3)                            19,836   11.0 %      19,040   10.4 %      39,442    9.3 %      37,954    8.8 %
   Rent expense (3)                                             17,440    9.7 %      16,719    9.1 %      34,926    8.2 %      33,633    7.8 %
   Other store operating expenses (3)                           29,698   16.5 %      30,285   16.5 %      60,732   14.3 %      60,409   14.0 %
                                                               -------  ----- -     -------  ----- -     -------  ----- -     -------  ----- -
       Total Company store operating costs (3)                 146,454   81.3 %     147,465   80.2 %     312,844   73.6 %     311,823   72.4 %
Advertising expense                                              8,385    4.6 %       8,637    4.7 %      17,422    4.1 %      18,681    4.3 %
General and administrative expenses                             11,436    6.3 %      11,738    6.4 %      25,121    5.9 %      26,255    6.1 %
                                                               -------  ----- -     -------  ----- -     -------  ----- -     -------  ----- -
       Total operating costs and expenses                      166,275   91.9 %     167,840   90.8 %     355,387   83.2 %     356,759   82.4 %
                                                               -------  ----- -     -------  ----- -     -------  ----- -     -------  ----- -
Operating income                                                14,711    8.1 %      16,955    9.2 %      71,926   16.8 %      76,169   17.6 %
Interest expense                                                 3,442    1.9 %       3,095    1.7 %       6,112    1.4 %       6,169    1.4 %
                                                               -------  ----- -     -------  ----- -     -------  ----- -     -------  ----- -
Income before income taxes                                      11,269    6.2 %      13,860    7.5 %      65,814   15.4 %      70,000   16.2 %
Income taxes                                                     6,491    3.6 %       4,866    2.6 %      27,174    6.4 %      26,953    6.2 %
                                                               -------  ----- -     -------  ----- -     -------  ----- -     -------  ----- -
Net income                                                   $   4,778    2.6 %   $   8,994    4.9 %   $  38,640    9.0 %   $  43,047    9.9 %
                                                             = =======  ===== =   = =======  ===== =   = =======  ===== =   = =======  ===== =
Earnings per share:
   Basic                                                     $    0.22            $    0.39            $    1.77            $    1.88
   Diluted                                                   $    0.22            $    0.39            $    1.77            $    1.86
Weighted average shares outstanding:
   Basic                                                        21,544               23,048               21,810               22,933
   Diluted                                                      21,592               23,214               21,849               23,104
_______________
Percentages are expressed as a percent of total revenues (except as
otherwise noted).
(1) Percent amount expressed as a percentage of food and
beverage sales.
(2) Percent amount expressed as a percentage of
entertainment and merchandise sales.
(3) Percentage amount expressed as a percentage of
Company store sales.
Due to rounding, percentages presented in the table above may not
add.
                                 CEC ENTERTAINMENT, INC.
                          CONDENSED CONSOLIDATED BALANCE SHEETS
                                       (Unaudited)
                                     (in thousands)
                                                               July 4,      January 3,
                                                                2010           2010
                                                           -------------- --------------
                          ASSETS
Current assets:
        Cash and cash equivalents                              $  14,649      $  17,361
        Other current assets                                      48,159         62,354
                                                                 -------        -------
               Total current assets                               62,808         79,715
Property and equipment, net                                      661,729        662,747
Other noncurrent assets                                            8,284          1,804
                                                                 -------        -------
               Total assets                                    $ 732,821      $ 744,266
                                                           ===== =======  ===== =======
           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
        Current portion of debt                                $     915      $     881
        Other current liabilities                                 88,818         79,858
                                                                 -------        -------
               Total current liabilities                          89,733         80,739
Debt, less current portion                                       341,552        364,929
Other noncurrent liabilities                                     124,436        130,685
                                                                 -------        -------
               Total liabilities                                 555,721        576,353
Stockholders' equity                                             177,100        167,913
                                                                 -------        -------
               Total liabilities and stockholders' equity      $ 732,821      $ 744,266
                                                           ===== =======  ===== =======
                                     CEC ENTERTAINMENT, INC.
                         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           (Unaudited)
                                         (in thousands)
                                                                        Six Months Ended
                                                                ---------------------------------
                                                                     July 4,         June 28,
                                                                        2010             2009
                                                                      -------          -------
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                       $  38,640        $  43,047
   Adjustments to reconcile net income to net cash provided by
   operating activities:
      Depreciation and amortization                                    39,868           38,422
      Deferred income taxes                                            (7,793 )          1,968
      Stock-based compensation expense                                  3,653            4,183
      Other adjustments                                                   429              517
   Changes in operating assets and liabilities:
      Operating assets                                                  5,715            9,704
      Operating liabilities                                            20,406           (6,213 )
                                                                      -------          ------- -
         Net cash provided by operating activities                    100,918           91,628
                                                                      -------          -------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment                                (43,074 )        (32,990 )
   Other investing activities                                          (4,040 )           (136 )
                                                                      ------- -        ------- -
         Net cash used in investing activities                        (47,114 )        (33,126 )
                                                                      ------- -        ------- -
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net payments on revolving credit facility                          (22,900 )        (54,250 )
   Exercise of stock options                                            4,629           14,749
   Payment of taxes for returned restricted shares                     (2,742 )         (1,351 )
   Treasury stock acquired                                            (35,555 )        (20,083 )
   Other financing activities                                             134            1,451
                                                                      -------          -------
         Net cash used in financing activities                        (56,434 )        (59,484 )
                                                                      ------- -        ------- -
Effect of foreign exchange rate changes on cash                           (82 )           (270 )
                                                                      ------- -        ------- -
Change in cash and cash equivalents                                    (2,712 )         (1,252 )
Cash and cash equivalents at beginning of period                       17,361           17,769
                                                                      -------          -------
Cash and cash equivalents at end of period                          $  14,649        $  16,517
                                                                ===== =======    ===== =======
                                        CEC ENTERTAINMENT, INC.
                             RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
                                            (in thousands)
The following table sets forth a reconciliation of cash provided
by operating activities to Free Cash Flow for the periods shown:
                                                Three Months Ended               Six Months Ended
                                       ------------------------------------ --------------------------
                                             July 4,          June 28,         July 4,      June 28,
                                              2010              2009            2010          2009
                                       ------------------ ----------------- ------------- ------------
                                                    (Unaudited)                     (Unaudited)
Cash provided by operating activities     $   9,161          $  9,882          $ 100,918     $ 91,628
Less:
        Capital expenditures                 22,120            17,248             43,074       32,990
                                            -------            ------            -------       ------
                Free Cash Flow            $ (12,959 )        $ (7,366 )        $  57,844     $ 58,638
                                       ==== ======= ====  ==== ====== ====  ==== =======  ==== ======

Free Cash Flow, a non-GAAP financial measure, is defined by the Company as cash provided by operating activities less capital expenditures.

The Company believes that Free Cash Flow provides useful information to the Company, investors and other interested parties about the amount of cash generated by the business that, after the acquisition of property and equipment, can be used for other strategic opportunities, including servicing debt, funding additional capital expenditures and making investments in the business. It should not be inferred that the entire Free Cash Flow amount is available for discretionary expenditures. The non-GAAP financial measure presented in the table above should not be viewed as an alternative or substitute for the Company's reported GAAP results. Free Cash Flow as defined herein may differ from similarly titled measures presented by other companies.

The following table sets forth diluted earnings per share ("Diluted EPS") excluding the estimated impact of the additional 53rd operating week in fiscal 2009:

                                                              Fiscal
                                                               2009
                                                               ----
                                                            (Unaudited)
Diluted earnings per share:
As reported                                                  $ 2.67
Less:
                                                               (.17 )
    Estimated 53rd-week impact
                                                               ---- ---
        Diluted EPS excluding estimated 53rd -week impact    $ 2.50
                                                           === ====

The Company's 2009 fiscal year consisted of 53 weeks as compared to 52 weeks in 2010, resulting in the 2009 fiscal year having one additional operating week as compared to the 2010 fiscal year. The Company estimates that the additional operating week benefited the fourth quarter and fiscal year-end diluted earnings per share approximately $0.17. The Company believes that presenting fiscal year 2009 diluted earnings per share excluding the estimated benefit of the extra week provides useful information to the Company, investors and other interested parties about the Company's year-over-year results and projected growth. The Company believes that an understanding of the impact of the 53rd operating week in fiscal 2009 on diluted earnings per share provides a more meaningful understanding of the Company's performance because the periods being compared consist of a different number of weeks.

The following table sets forth estimated diluted earnings per share ("Estimated Diluted EPS") for the period shown excluding the impact of the second quarter of 2010 unfavorable tax charges:

                                                                            Full Fiscal Year 2010
                                                                                 Estimated +
                                                                            ---------------------
                                                                                 (Unaudited)
Estimated Diluted EPS                                                          $ 2.52     $ 2.62
Plus:
    Second quarter 2010 unfavorable tax charges                                   .13        .13
                                                                                 ----       ----
        Estimated Diluted EPS excluding second quarter of 2010 unfavorable     $ 2.65     $ 2.75
        tax charge
                                                                            ==== ====  ==== ====

+ Ranges are provided only to reflect possible variability and are not intended to sum to an estimated amount.

The Company's historical Diluted EPS includes the effect of unfavorable discrete adjustments recorded to income tax expense during the second quarter of 2010. The Company believes that presenting Estimated Diluted EPS for the full fiscal year 2010 excluding the impact of second quarter 2010 unfavorable tax charges provides useful information to the Company, investors and other interested parties about the Company's year-over-year results and projected growth. The Company believes that an understanding of the impact of the second quarter 2010 unfavorable tax charges on estimated diluted earnings per share for the full fiscal year 2010 provides a more meaningful understanding of the Company's performance because the impact of this matter may be considered an isolated occurrence.

                         CEC ENTERTAINMENT, INC.
                         STORE COUNT INFORMATION
                                 Three Months Ended   Six Months Ended
                                 ------------------ --------------------
                                  July 4, June 28,    July 4,  June 28,
                                   2010     2009       2010      2009
                                 -------  --------  ---------- --------
Number of Company-owned stores:
   Beginning of period               498       495   497            495
   New                                 -         1     -              1
   Acquired from franchisees           -         -     1              -
   Closed                              -         -     -              -
                                 -------  --------  ----       --------
   End of period                     498       496   498            496
                                 =======  ========  ====       ========
Number of franchised stores:
   Beginning of period                48        47    48             46
   New                                 -         1     1              2
   Acquired by the Company             -         -    (1 )            -
   Closed                              -         -     -              -
                                 -------  --------  ----       --------
   End of period                      48        48    48             48
                                 =======  ========  ====       ========

SOURCE: CEC Entertainment, Inc.

###

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