CEC Entertainment, Inc. : CEC Entertainment Reports Financial Results for the First Quarter 2012
05/03/2012| 04:15pm US/Eastern
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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.
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.
CEC Entertainment, Inc. Tiffany B. Kice, 972-258-4525 Executive
Vice President Chief Financial Officer
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