CEC Entertainment Reports Financial Results for the Fourth Quarter and Fiscal Year-End 2009
IRVING, Texas, Feb 25, 2010 (BUSINESS WIRE) -- CEC Entertainment, Inc. (NYSE: CEC) today reported net earnings of $5.4 million for the fourth quarter ended January 3, 2010, compared to net earnings of $2.4 million in the fourth quarter of 2008. Diluted earnings per share increased to $0.24 for the fourth quarter of 2009, compared to $0.10 in the fourth quarter of 2008. Total quarterly revenues increased 7.2% to $187.6 million during the fourth quarter of 2009 from total quarterly revenues of $175.0 million in the fourth quarter of 2008. Comparable store sales for the fourth quarter of 2009 decreased 2.0%.
Net earnings for the full fiscal year 2009 were $61.2 million compared to net earnings of $56.5 million for fiscal year 2008. Diluted earnings per share increased to $2.67 for fiscal year 2009, compared to $2.33 for fiscal year 2008. Total revenues for fiscal year 2009 increased 0.5% to $818.3 million compared to total revenues of $814.5 million in fiscal year 2008. Comparable store sales for fiscal year 2009 decreased 2.8%.
Our 2009 fiscal year consisted of 53 weeks compared to 52 weeks in 2008, resulting in one additional operating week in the fourth quarter of 2009. The favorable impact to total revenues from the additional operating week was approximately $19.5 million. We estimate that the additional operating week benefited the fourth quarter and fiscal year-end diluted earnings per share approximately $0.17. Excluding the impact of the additional week, diluted earnings per share for the 2009 fiscal year increased approximately 7%. Additionally, diluted earnings per share growth for the fourth quarter and fiscal year-end 2009 benefited from repurchases of approximately 6.7 million shares of our common stock throughout 2008 and 2009.
Michael Magusiak, President and Chief Executive Officer, stated that, "Despite the deep recession and the negative impact from the swine flu in 2009, I believe that our comparable store sales held up reasonably well. Furthermore, our business continues to generate significant cash flow. Our cash flow from operations increased to $154.3 million which represented 18.8% of our total revenue in 2009. This strong cash flow enabled us to complete capital initiatives at 160 of our existing stores, build three new Company stores, reduce debt by $47.6 million and still repurchase $52.6 million of our common stock. We repurchased 1,775,089 shares during 2009, which represented 7.7% of diluted weighted average shares outstanding at year-end 2009.
"We are somewhat encouraged by our 0.9% increase in same week comparable store sales through the first seven weeks of the 2010 fiscal year. We have developed a multifaceted plan to increase comparable store sales and earnings per share in 2010. This plan incorporates sales initiatives that were effective last year as well as new sales initiatives that we have been testing and will be implementing throughout 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 $2.68 to $2.78, representing a growth rate of 7% to 11% excluding the benefit of the extra week in fiscal year 2009. This guidance incorporates the following assumptions:
- Comparable store sales, on a same week basis, up 1.0% to 2.0% for fiscal year 2010;
- six additional Company-owned stores, including one relocation and one store acquired from a franchisee;
- average cheddar block prices in a range of $1.55 to $1.65 per pound;
- slight labor pressure during the fiscal year due to minimum wage increases in the third quarter of 2009 and anticipated increases in unemployment taxes;
- effective tax rate of approximately 38.0%;
- total capital expenditures will range from $94.0 million to $100.0 million;
- free cash flow used to repurchase Company common stock on an opportunistic basis.
Fourth Quarter 2009 Conference Call:
The Company will host a conference call Thursday, February 25, 2010, at 3:30 p.m. Central Time to discuss its fourth quarter and fiscal year-end 2009 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, March 26, 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. This non-GAAP financial measure presented in this earnings release should not be viewed as an alternative or substitute 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 strategic opportunities, including servicing debt, funding 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 limitation of using Free Cash Flow versus the GAAP measure of cash provided by operating activities as a means for evaluating the business is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period since it excludes cash used for capital expenditures during the period. The Company compensates for this limitation by providing information about its capital expenditures on the face of its consolidated statement of cash flows in its Form 10-Q and Annual Report on Form 10-K. 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.
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 545 Chuck E. Cheese's stores located in 48 states (excluding Wyoming and Vermont) and six foreign countries or territories. Currently, 497 locations in the United States and Canada are owned and operated by the Company.
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)
Quarter Ended Fiscal Year Ended
January 3, December 28, January 3, December 28,
2010 (1) 2008 2010 (1) 2008
REVENUES
Food and beverage sales $ 91,973 49.0 % $ 88,598 50.6 % $ 406,635 49.7 % $ 409,895 50.3 %
Entertainment and merchandise sales 94,811 50.5 % 85,644 49.0 % 407,928 49.8 % 400,798 49.2 %
Company store sales 186,784 99.6 % 174,242 99.6 % 814,563 99.5 % 810,693 99.5 %
Franchise fees and royalties 816 0.4 % 719 0.4 % 3,783 0.5 % 3,816 0.5 %
Total revenues 187,600 100.0 % 174,961 100.0 % 818,346 100.0 % 814,509 100.0 %
OPERATING COSTS AND EXPENSES
Company store operating costs:
Cost of food and beverage (2) 22,190 24.1 % 20,905 23.6 % 91,816 22.6 % 96,891 23.6 %
Cost of entertainment and merchandise (3) 8,358 8.8 % 8,057 9.4 % 36,429 8.9 % 34,525 8.6 %
Total (4) 30,548 16.4 % 28,962 16.6 % 128,245 15.7 % 131,416 16.2 %
Labor expenses (4) 55,546 29.7 % 51,808 29.7 % 223,084 27.4 % 223,331 27.5 %
Depreciation and amortization (4) 19,915 10.7 % 19,462 11.2 % 77,101 9.5 % 74,805 9.2 %
Rent expense (4) 17,052 9.1 % 16,365 9.4 % 67,695 8.3 % 65,959 8.1 %
Other store operating expenses (4) 31,351 16.8 % 28,637 16.4 % 123,986 15.2 % 119,990 14.8 %
Total Company store operating costs (4) 154,412 82.7 % 145,234 83.4 % 620,111 76.1 % 615,501 75.9 %
Advertising expense 8,781 4.7 % 8,055 4.6 % 36,641 4.5 % 34,736 4.3 %
General and administrative expenses 13,046 7.0 % 12,632 7.2 % 50,629 6.2 % 55,970 6.9 %
Asset impairments - 0.0 % 145 0.1 % - 0.0 % 282 0.0 %
Total operating costs and expenses 176,239 93.9 % 166,066 94.9 % 707,381 86.4 % 706,489 86.7 %
Operating income 11,361 6.1 % 8,895 5.1 % 110,965 13.6 % 108,020 13.3 %
Interest expense, net 3,079 1.6 % 4,441 2.5 % 12,017 1.5 % 17,389 2.1 %
Income before income taxes 8,282 4.4 % 4,454 2.5 % 98,948 12.1 % 90,631 11.1 %
Income taxes 2,845 1.5 % 2,080 1.2 % 37,754 4.6 % 34,137 4.2 %
Net income $ 5,437 2.9 % $ 2,374 1.4 % $ 61,194 7.5 % $ 56,494 6.9 %
Earnings per share:
Basic $ 0.24 $ 0.10 $ 2.68 $ 2.37
Diluted $ 0.24 $ 0.10 $ 2.67 $ 2.33
Weighted average shares outstanding:
Basic 22,518 22,696 22,835 23,825
Diluted 22,526 22,855 22,933 24,199
(1) Fiscal year 2009 consisted of 53 weeks compared to 52 weeks in fiscal year 2008.
The quarterly period ended January 3, 2010 had 14 weeks compared to the quarterly
period ended December 28, 2008 which had 13 weeks.
(2) Percent amount expressed as a percentage of food and beverage sales.
(3) Percent amount expressed as a percentage of entertainment and merchandise sales.
(4) Percent amount expressed as a percentage of Company store sales.
Percentages are expressed as a percent of total revenues (except as otherwise noted).
Due to rounding, percentages presented in the table above may not add.
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
January 3, December 28,
2010 2008
ASSETS
Current assets:
Cash and cash equivalents $ 17,361 $ 17,769
Other current assets 62,354 60,988
Total current assets 79,715 78,757
Property and equipment, net 662,747 666,443
Other noncurrent assets 1,804 2,240
Total assets $ 744,266 $ 747,440
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 881 $ 806
Other current liabilities 79,858 85,694
Total current liabilities 80,739 86,500
Long-term debt, less current portion 364,929 413,252
Other noncurrent liabilities 130,685 119,102
Total liabilities 576,353 618,854
Stockholders' equity 167,913 128,586
Total liabilities and stockholders' equity $ 744,266 $ 747,440
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Fiscal Year Ended
January 3, December 28,
2010 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 61,194 $ 56,494
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 78,071 75,445
Deferred income taxes 8,581 580
Stock-based compensation expense 7,934 5,980
Other adjustments 3,208 3,155
Changes in operating assets and liabilities:
Current assets (1,561 ) (8,567 )
Current liabilities (3,169 ) 11,095
Net cash provided by operating activities 154,258 144,182
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (73,090 ) (87,790 )
Disposition of property and equipment - 2,362
Other investing activities 159 (50 )
Net cash used in investing activities (72,931 ) (85,478 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments on) proceeds from line of credit (47,550 ) 85,050
Exercise of stock options 19,731 19,170
Payment of taxes for returned restricted shares (1,369 ) (1,031 )
Treasury stock acquired (52,618 ) (160,845 )
Other financing activities 1,238 (378 )
Net cash used in financing activities (80,568 ) (58,034 )
Effect of foreign exchange rate changes on cash (1,167 ) (1,274 )
Change in cash and cash equivalents (408 ) (604 )
Cash and cash equivalents at beginning of period 17,769 18,373
Cash and cash equivalents at end of period $ 17,361 $ 17,769
CEC ENTERTAINMENT, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands, except per share amounts)
The following table sets forth a reconciliation of cash provided
by operating activities to Free Cash Flow for the periods shown:
Quarter Ended Fiscal Year Ended
January 3, December 28, January 3, December 28,
2010 2008 2010 2008
(Unaudited) (Unaudited)
Cash provided by operating activities $ 26,827 $ 18,789 $ 154,258 $ 144,182
Less:
Capital expenditures 21,923 24,782 73,090 87,790
Free Cash Flow $ 4,904 $ (5,993 ) $ 81,168 $ 56,392
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 the non-GAAP financial measure presented in the table above provide 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 strategic opportunities, including servicing debt, funding 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 limitation of using Free Cash Flow versus the GAAP measure of cash provided by operating activities as a means for evaluating the business is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period since it excludes cash used for capital expenditures during the period. The Company compensates for this limitation by providing information about its capital expenditures on the face of its consolidated statement of cash flows in its Form 10-Qs and Annual Report on Form 10-K. 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 excluding the estimated impact of the additional 53rd operating week in fiscal 2009 which the Company believes is helpful for investors to understand the impact of the 53rd operating week in fiscal 2009 on Diluted EPS:
Fiscal
2009
(Unaudited)
Diluted earnings per share:
As reported $ 2.67
Less:
Estimated 53rd-week impact (.17 )
$ 2.50
CEC ENTERTAINMENT, INC.
STORE COUNT INFORMATION
Quarter Ended Fiscal Year Ended
January 3, December 28, January 3, December 28,
2010 2008 2010 2008
Number of Company-owned stores:
Beginning of period 495 493 495 490
New 2 2 3 5
Acquired from franchisees - - - 2
Closed - - (1 ) (2 )
End of period 497 495 497 495
Number of franchised stores:
Beginning of period 48 46 46 44
New 1 - 3 4
Acquired by the Company - - - (2 )
Closed (1 ) - (1 ) -
End of period 48 46 48 46
SOURCE: CEC Entertainment, Inc.
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