CEC Entertainment, Inc. : CEC Entertainment Reports Financial Results for the Second Quarter of 2012
08/02/2012| 04:15pm US/Eastern
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CEC Entertainment, Inc. (NYSE: CEC) today announced its financial
results for its second quarter ended July 1, 2012. Total revenues for
the second quarter of 2012 decreased 2.0%, or $3.8 million, to $182.4
million from $186.2 million for the second quarter of 2011. The decrease
primarily related to a 2.4% decrease in comparable store sales, slightly
offset by additional revenues generated from new stores.
Net income for the second quarter ended July 1, 2012 decreased 37.3%, or
$2.4 million, to $4.1 million as compared to $6.5 million for the second
quarter of 2011. Diluted earnings per share decreased to $0.23 per share
for the second quarter of 2012 from $0.34 per share for the second
quarter of 2011. The decrease primarily related to the decrease in net
income.
For the first six months of 2012, total revenues decreased 3.0%, or
$13.4 million, to $429.2 million as compared to $442.6 million for the
first six months of 2011. The decrease in total revenues was primarily
related to a 3.4% decrease in comparable store sales, slightly offset by
additional revenues generated from new stores.
Net income for the first six months of 2012 decreased 10.4%, or $4.2
million, to $36.4 million as compared to $40.6 million for the first six
months of 2011. Despite the decrease in net income, diluted earnings per
share remained relatively flat for the first six months of 2012 at $2.05
per share as compared to diluted earnings per share of $2.06 per share
for the first six months of 2011. Diluted earnings per share for the
first six months of 2012 benefitted approximately $0.16 from our
repurchase of 2.7 million shares of our common stock since the beginning
of 2011 fiscal year.
On July 31, 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 October 4, 2012 to stockholders of record as of September 6, 2012.
Michael Magusiak, President and Chief Executive Officer, stated that,
"We are obviously not pleased with our first half of the year comparable
store sales results and the impact on earnings. We believe our greatest
opportunity to generate increased guest traffic and comparable store
sales is through our new comprehensive marketing and advertising
strategy. We refreshed our Chuck E. Cheese character and launched our
new kids campaign on July 5th and are anticipating our mom's
advertising campaign will commence toward the end of this month."
Mr. Magusiak continued, "We look forward to implementing our plan to
increase future sales and earnings."
Business Outlook:
At this time, we are estimating diluted earnings per share for fiscal
2012 to be in a range of $2.65 to $2.75, which is a decrease from
previous guidance of $3.00 to $3.15. This guidance incorporates the
following assumptions for fiscal 2012:
average cheddar cheese block prices will remain in the range of $1.50
to $1.70 per pound;
depreciation and amortization expense will decrease approximately 2%
from the prior year;
rent expense will increase approximately 2% from the prior year;
advertising expense will increase approximately 2% from the prior year;
annual effective income tax rate of approximately 38.8%;
spend of $88 million for capital expenditures during fiscal year 2012;
open 12-15 new Company-owned stores, including approximately three
relocations and one franchise acquisition; and
payment of four quarterly dividends totaling approximately $16 million.
This guidance considers impacting approximately 125 to 135 stores with
store expansions, major remodels, and game enhancements.
Second Quarter 2012 Conference Call:
The Company will host a conference call Thursday, August 2, 2012, at
3:30 p.m. Central Time to discuss its second 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, September 21, 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 560 Chuck E. Cheese's stores located in 48 states and eight
foreign countries or territories. Currently, 510 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
Six Months Ended
July 1,
July 3,
July 1,
July 3,
2012
2011
2012
2011
REVENUES:
Food and beverage sales
$
84,882
46.5
%
$
88,379
47.5
%
$
200,784
46.8
%
$
212,136
47.9
%
Entertainment and merchandise sales
96,274
52.8
%
96,825
52.0
%
225,798
52.6
%
228,284
51.6
%
Total Company store sales
181,156
99.3
%
185,204
99.5
%
426,582
99.4
%
440,420
99.5
%
Franchise fees and royalties
1,259
0.7
%
1,012
0.5
%
2,591
0.6
%
2,198
0.5
%
Total revenues
182,415
100.0
%
186,216
100.0
%
429,173
100.0
%
442,618
100.0
%
OPERATING COSTS AND EXPENSES:
Company store operating costs:
Cost of food and beverage (exclusive of items shown separately
below) (1)
21,025
24.8
%
22,087
25.0
%
49,236
24.5
%
50,990
24.0
%
Cost of entertainment and merchandise (exclusive of items shown
separately below) (2)
7,170
7.4
%
7,351
7.6
%
16,145
7.2
%
17,511
7.7
%
Total cost of food, beverage, entertainment and merchandise(3)
28,195
15.6
%
29,438
15.9
%
65,381
15.3
%
68,501
15.6
%
Labor expenses (3)
53,385
29.5
%
52,242
28.2
%
115,053
27.0
%
115,879
26.3
%
Depreciation and amortization (3)
19,091
10.5
%
20,906
11.3
%
38,830
9.1
%
41,658
9.5
%
Rent expense (3)
18,957
10.5
%
18,334
9.9
%
37,915
8.9
%
36,819
8.4
%
Other store operating expenses (3)
30,702
16.9
%
30,252
16.3
%
62,266
14.6
%
63,246
14.4
%
Total Company store operating costs (3)
150,330
83.0
%
151,172
81.6
%
319,445
74.9
%
326,103
74.0
%
Other costs and expenses:
Advertising expense
8,106
4.4
%
8,849
4.8
%
16,981
4.0
%
17,916
4.0
%
General and administrative expenses
13,062
7.2
%
13,224
7.1
%
26,704
6.2
%
27,279
6.2
%
Asset impairments
2,374
1.3
%
-
0.0
%
2,723
0.6
%
-
0.0
%
Total operating costs and expenses
173,872
95.3
%
173,245
93.0
%
365,853
85.2
%
371,298
83.9
%
Operating income
8,543
4.7
%
12,971
7.0
%
63,320
14.8
%
71,320
16.1
%
Interest expense
2,083
1.1
%
2,286
1.2
%
4,054
0.9
%
5,040
1.1
%
Income before income taxes
6,460
3.5
%
10,685
5.7
%
59,266
13.8
%
66,280
15.0
%
Income taxes
2,381
1.3
%
4,183
2.2
%
22,883
5.3
%
25,696
5.8
%
Net income
$
4,079
2.2
%
$
6,502
3.5
%
$
36,383
8.5
%
$
40,584
9.2
%
Earnings per share:
Basic
$
0.23
$
0.34
$
2.06
$
2.07
Diluted
$
0.23
$
0.34
$
2.05
$
2.06
Weighted average common shares outstanding:
Basic
17,599
19,323
17,692
19,630
Diluted
17,640
19,359
17,745
19,669
Cash Dividends Declared Per Share
$
0.22
$
0.20
$
0.44
$
0.40
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)
July 1,
January 1,
2012
2012
ASSETS
Current assets:
Cash and cash equivalents
$
17,436
$
18,673
Other current assets
60,720
62,008
Total current assets
78,156
80,681
Property and equipment, net
693,612
683,390
Other noncurrent assets
11,293
8,400
Total assets
$
783,061
$
772,471
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligations, current portion
$
816
$
834
Other current liabilities
83,440
82,854
Total current liabilities
84,256
83,688
Capital lease obligations, less current portion
13,058
10,075
Revolving credit facility borrowings
383,400
389,600
Other noncurrent liabilities
162,576
164,931
Total liabilities
643,290
648,294
Stockholders' equity
139,771
124,177
Total liabilities and stockholders' equity
$
783,061
$
772,471
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
July 1,
July 3,
2012
2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$
36,383
$
40,584
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
39,208
41,978
Deferred income taxes
(403
)
11,897
Stock-based compensation expense
3,705
3,779
Other adjustments
3,008
123
Changes in operating assets and liabilities:
Operating assets
(5,797
)
936
Operating liabilities
3,683
12,260
Net cash provided by operating activities
79,787
111,557
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
(50,111
)
(46,787
)
Acquisition of a store from a franchisee
(234
)
-
Other investing activities
270
(502
)
Net cash used in investing activities
(50,075
)
(47,289
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on revolving credit facility
(6,200
)
(20,500
)
Dividends paid
(8,016
)
(3,922
)
Restricted stock returned for payment of taxes
(2,612
)
(2,728
)
Purchases of treasury stock
(14,353
)
(40,019
)
Other financing activities
229
907
Net cash used in financing activities
(30,952
)
(66,262
)
Effect of foreign exchange rate changes on cash
3
101
Change in cash and cash equivalents
(1,237
)
(1,893
)
Cash and cash equivalents at beginning of period
18,673
19,269
Cash and cash equivalents at end of period
$
17,436
$
17,376
CEC ENTERTAINMENT, INC. RECONCILIATION OF NON-GAAP
FINANCIAL MEASURES (Unaudited)
Net Income to EBITDA:
The following table set forth a reconciliation of net income to EBITDA
and EBITDA expressed as a percentage of total revenues for the periods
shown:
Three Months Ended
Six Months Ended
July 1,
July 3,
July 1,
July 3,
2012
2011
2012
2011
(in thousands, except percentages)
Total revenues
$
182,415
$
186,216
$
429,173
$
442,618
Net income
$
4,079
$
6,502
$
36,383
$
40,584
Add:
Income taxes
2,381
4,183
22,883
25,696
Interest expense
2,083
2,286
4,054
5,040
Depreciation and amortization
19,272
21,064
39,208
41,978
EBITDA
$
27,815
$
34,035
$
102,528
$
113,298
EBITDA as a percent of total revenues
15.2
%
18.3
%
23.9
%
25.6
%
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:
Six Months Ended
July 1,
July 3,
2012
2011
(in thousands)
Cash provided by operating activities
$
79,787
$
111,557
Less:
Capital expenditures and franchise acquisitions
50,345
46,787
Dividend payments
8,016
3,922
Free Cash Flow
$
21,426
$
60,848
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
Six Months Ended
July 1,
July 3,
July 1,
July 3,
2012
2011
2012
2011
Number of Company-owned stores:
Beginning of period
508
507
507
507
New (1)
5
1
5
2
Acquired from franchisees
-
-
1
-
Closed (1)
(3
)
(1
)
(3
)
(2
)
End of period
510
507
510
507
Number of franchised stores:
Beginning of period
50
47
49
47
New
-
1
2
2
Acquired by the Company
-
-
(1
)
-
Closed
-
-
-
(1
)
End of period
50
48
50
48
(1) For the three and six months ended July 1, 2012, new and
closed stores include two relocated stores. New and closed stores for
the six months ended July 3, 2011, include one relocated store.
CEC Entertainment, Inc. Tiffany B. Kice, 972-258-4525 Executive
Vice President Chief Financial Officer
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