CEC Entertainment Reports Financial Results for the First Quarter 2012

IRVING, Texas--(BUSINESS WIRE)--CEC Entertainment, Inc. (NYSE: CEC) today announced its financial results for its first quarter ended April 1, 2012. Total revenues for the first quarter of 2012 decreased 3.8%, or $9.6 million, to $246.8 million from $256.4 million for the first quarter of 2011. Comparable store sales decreased 4.2% for the first quarter of 2012 as compared to the first quarter of 2011.

Net income for the first quarter ended April 1, 2012 decreased 5.2% to $32.3 million as compared to $34.1 million for the first quarter of 2011. Diluted earnings per share for the first quarter of 2012 were $1.81 per share as compared to $1.71 per share for the first quarter of 2011. Diluted earnings per share during the first quarter of 2012 benefited from our repurchase of approximately 2.3 million shares of our common stock since the beginning of the first quarter of 2011 through the end of the first quarter of 2012.

On May 1, 2012, the Company's Board of Directors declared a cash dividend of $0.22 per share. This cash dividend is scheduled to be paid on July 5, 2012 to stockholders of record as of June 7, 2012.

Michael Magusiak, President and Chief Executive Officer, stated that, "I am disappointed with the decrease in comparable store sales during the first quarter. Overall, we believe our greatest opportunity in generating increased customer traffic, and ultimately comparable store sales, is through a new comprehensive marketing and advertising campaign that will be introduced in the second half of this year. Our strategy for growth will also continue to focus on reinvesting in our existing store base to continue to provide guests with our best-in-class product and experience, as well as expanding domestically and franchising internationally."

Mr. Magusiak continued, "As we move forward in 2012 and implement our new strategies, we believe we will see meaningful improvement in results."

Business Outlook:

At this time, we are projecting comparable store sales to be flat to down 2% for the second quarter and up 1% to 3% for the second half of the year. We are estimating our fiscal 2012 diluted earnings per share to be in a range of $3.00 to $3.15, a decrease from the guidance of $3.10 to $3.20 previously provided. This guidance incorporates the following assumptions:

  • average cheddar cheese block prices in a range of $1.50 to $1.70 per pound;
  • depreciation and amortization expense will decrease approximately 1% from the prior year;
  • rent expense will increase approximately 2% from the prior year;
  • advertising expense as a percentage of total revenue will remain relatively flat at 4.3% of sales;
  • annual effective income tax rate of approximately 39.1%;
  • capital expenditures to range from $94 to $96 million for fiscal year 2012;
  • 12-15 new Company-owned stores, including approximately three relocations and one franchise acquisition;
  • our intent to repurchase Company common stock on an opportunistic basis; and
  • payment of four quarterly dividends totaling approximately $16 million.

This guidance considers impacting approximately 160 stores with store expansions, major remodels, and game enhancements.

First Quarter 2012 Conference Call:

The Company will host a conference call Thursday, May 3, 2012, at 3:30 p.m. Central Time to discuss its first quarter financial results and outlook for fiscal year 2012. 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, June 29, 2012.

Non-GAAP Financial Measures:

The Company reports and discusses its operating results using financial measures consistent with accounting principles generally accepted in the United States ("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 Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") and Free Cash Flow. 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. A reconciliation of the most directly comparable GAAP financial measure to EBITDA and Free Cash Flow is set forth in a table accompanying this release.

About CEC Entertainment, Inc.:

For more than 30 years, CEC Entertainment has served as the nationally recognized leader in family dining and entertainment and the place Where a Kid can be a Kid®. The Company and its franchisees operate a system of 558 Chuck E. Cheese's stores located in 48 states and eight foreign countries or territories. Currently, 508 locations in the United States and Canada are owned and operated by the Company. CEC Entertainment, Inc. and its franchises have the common goal of creating lifelong memories for families through fun, food, and play. Each Chuck E. Cheese's features musical and comic robotic entertainment, games, rides, and play areas, as well as a variety of dining options including pizza, sandwiches, a salad bar, and desserts. Committed to providing a fun, safe environment, Chuck E. Cheese's helps protect families through industry-leading programs such as Kid Check®.

Chuck E. Cheese's aims to promote positive, lifelong memories inside and outside of its stores. In addition to providing a fun entertainment experience for millions of families across the world, Chuck E. Cheese's has donated more than $7.7 million to schools and non-profit institutions through its fundraising programs. For more information, see the Company's website at www.chuckecheese.com.

Cautionary Statement Regarding 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 1, 2012, filed on February 23, 2012. 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:

  • Our ability to successfully implement our business development strategies;
  • Unanticipated costs and delays in implementing our business development strategies;
  • Changes in consumer discretionary spending and general economic conditions;
  • Competition in both the restaurant and entertainment industries;
  • 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;
  • Loss of certain key personnel;
  • Disruptions in the financial markets affecting the availability and cost of credit and our ability to maintain adequate insurance coverage;
  • Disruption of our commodity distribution system;
  • Our dependence on a few global providers for the procurement of games and rides;
  • Government regulations, litigation, product liability claims and product recalls;
  • Adverse effects of local conditions, natural disasters and other events;
  • Fluctuations in our quarterly results of operations due to seasonality;
  • Disruptions of our information technology systems;
  • Risks in connection with owning and leasing real estate;
  • Our ability to adequately protect our trademarks or other proprietary rights; and
  • Conditions in foreign markets.

The forward-looking statements made in this press release relate only to events as of the date on which the statements are made in this press release. 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 are made or to reflect the occurrence of unanticipated events.

     

CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands, except per share information)

     
    Three Months Ended
    April 1,     April 3,
    2012     2011
                   
REVENUES:                  
Food and beverage sales   $ 115,902   47.0 %     $ 123,757   48.3 %
Entertainment and merchandise sales     129,524   52.5 %       131,459   51.3 %
Total company store sales     245,426   99.5 %       255,216   99.5 %
Franchise fees and royalties     1,332   0.5 %       1,186   0.5 %
Total revenues     246,758   100.0 %       256,402   100.0 %
                   
OPERATING COSTS AND EXPENSES:                  

Company store operating costs:

                 
Cost of food and beverage (exclusive of items shown separately below)(1)     28,211   24.3 %       28,903   23.4 %
Cost of entertainment and merchandise (exclusive of items shown separately below)(2)     8,975   6.9 %       10,160   7.7 %
Total cost of food, beverage, entertainment and merchandise(3)     37,186   15.2 %       39,063   15.3 %
Labor expenses(3)     61,668   25.1 %       63,637   24.9 %
Depreciation and amortization(3)     19,739   8.0 %       20,752   8.1 %
Rent expense(3)     18,958   7.7 %       18,485   7.2 %
Other store operating expenses(3)     31,564   12.9 %       32,994   12.9 %
Total Company store operating costs(3)     169,115   68.9 %       174,931   68.5 %

Other costs and expenses:

                 
Advertising expense     8,875   3.6 %       9,067   3.5 %
General and administrative expenses     13,642   5.5 %       14,055   5.5 %
Asset impairments     349   0.1 %       -   0.0 %
Total operating costs and expenses     191,981   77.8 %       198,053   77.2 %
                   
Operating income     54,777   22.2 %       58,349   22.8 %
Interest expense     1,971   0.8 %       2,754   1.1 %
                   
Income before income taxes     52,806   21.4 %       55,595   21.7 %
Income taxes     20,502   8.3 %       21,513   8.4 %
                   
Net income   $ 32,304   13.1 %     $ 34,082   13.3 %
                   

Earnings per share:

                 
Basic   $ 1.82         $ 1.71    
Diluted   $ 1.81         $ 1.71    
                   

Weighted average common shares outstanding:

                 
Basic     17,784           19,938    
Diluted     17,849           19,979    
                   
Cash Dividends Declared Per Share   $ 0.22         $ 0.20    

______________

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.

(Note - Due to rounding, percentages presented in the table above may not sum to total. The percentage amounts for the components of cost of food and beverage and the cost of entertainment and merchandise may not sum to total due to the fact that cost of food and beverage and cost of entertainment and merchandise are expressed as a percentage of related food and beverage sales and entertainment and merchandise sales, as opposed to total Company store sales.)

           

CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

           
    April 1,     January 1,
    2012     2012
ASSETS          
           
Current assets:          
Cash and cash equivalents   $ 20,769    

$

18,673

Other current assets     53,497       62,008
Total current assets     74,266       80,681
Property and equipment, net     685,201       683,390
Other noncurrent assets     9,317       8,400
           
Total assets   $ 768,784     $ 772,471
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
Current liabilities:          
Capital lease obligations, current portion   $ 803     $ 834
Other current liabilities     101,534       82,854

Total current liabilities

    102,337       83,688
Capital lease obligations, less current portion     13,290       10,075
Revolving credit facility borrowings     340,000       389,600
Other noncurrent liabilities     160,713       164,931
Total liabilities     616,340       648,294
           
Stockholders' equity     152,444       124,177
           
Total liabilities and stockholders' equity   $ 768,784     $ 772,471
     

CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

     
    Three Months Ended
    April 1,     April 3,
    2012     2011
           
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income   $ 32,304       $ 34,082  
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization     19,936         20,914  
Deferred income taxes     (2,364 )       10,007  
Stock-based compensation expense     1,749         1,835  
Other adjustments     92         (9 )
Changes in operating assets and liabilities:          
Operating assets     (1,333 )       (215 )
Operating liabilities     27,269         21,847  
Net cash provided by operating activities     77,653         88,461  
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchases of property and equipment     (19,794 )       (22,390 )
Acquisition of a store from a franchisee     (234 )       -  
Other investing activities     292         (524 )

Net cash used in investing activities

    (19,736 )       (22,914 )
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Net repayments on revolving credit facility     (49,600 )       (40,000 )
Dividends paid     (4,101 )       -  
Restricted stock returned for payment of taxes     (2,603 )       (2,725 )
Purchases of treasury stock     -         (22,463 )
Other financing activities     416         547  
Net cash used in financing activities     (55,888 )       (64,641 )
           
Effect of foreign exchange rate changes on cash     67         77  
           
Change in cash and cash equivalents     2,096         983  
           
Cash and cash equivalents at beginning of period     18,673         19,269  
           
Cash and cash equivalents at end of period   $ 20,769       $ 20,252  
                   
                   

CEC ENTERTAINMENT, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)

Net Income to EBITDA:

The following table sets forth a reconciliation of net income to EBITDA and EBITDA expressed as a percentage of total revenues for the periods shown:

    Three Months Ended
    April 1,     April 3,
    2012     2011
    (in thousands, except percentages)
                   
Total revenues   $ 246,758       $ 256,402  
           
Net income   $ 32,304       $ 34,082  
Add:          
Income taxes     20,502         21,513  
Interest expense     1,971         2,754  
Depreciation and amortization     19,936         20,914  
EBITDA   $ 74,713       $ 79,263  
           
EBITDA as a percent of total revenues     30.3 %       30.9 %
                   

The Company believes that EBITDA provides useful information to the Company, investors, and other interested parties about the Company's operating performance, its capacity to incur and service debt, fund capital expenditures, and other corporate uses.

EBITDA, a non-GAAP financial measure, is defined by the Company as net income before income taxes, interest expense, and depreciation and amortization. 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. EBITDA as defined herein may differ from similarly titled measures presented by other companies.

CEC ENTERTAINMENT, INC.
FREE CASH FLOW AND STORE COUNT INFORMATION
(Unaudited)

Free Cash Flow:

The following table sets forth a reconciliation of cash provided by operating activities to Free Cash Flow for the periods shown:

    Three Months Ended
    April 1,     April 3,
    2012     2011
    (in thousands)
           
Cash provided by operating activities   $ 77,653     $ 88,461
Less:          
Capital expenditures and franchise acquisitions     20,028       22,390
Dividend payments     4,101       -
Free Cash Flow   $ 53,524     $ 66,071
               

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

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, franchise acquisitions and payment of dividends, 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.

Store Count Information:

    Three Months Ended
    April 1,     April 3,
    2012     2011
           

Number of Company-owned stores:

         
Beginning of period   507       507  
New(1)   -       1  
Acquired from franchisee   1       -  
Closed(1)   -      

(1

)
End of period   508       507  
           

Number of franchised stores:

         
Beginning of period   49       47  
New   2       1  
Acquired by the Company   (1 )     -  
Closed   -       (1 )
End of period   50       47  

______________

(1) The new and closed store in the first quarter of 2011 represents a relocated store.

###

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