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CEC Entertainment Reports Financial Results for the First Quarter of 2011

2011-05-09

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CEC Entertainment First Quarter Comparable Store Sales Increase 1.1%

CEC Entertainment, Inc. (NYSE: CEC) announced its financial results for the first quarter ended April 3, 2011. Total revenues for the first quarter of 2011 increased 4.1% to $256.4 million from $246.3 million in the first quarter of 2010. The increase was primarily due to a weighted average Company-owned store increase of approximately eight stores as compared to the first quarter of 2010, and a comparable store sales increase of 1.1%.

Net income for the first quarter ended April 3, 2011 increased to $34.1 million compared to net income of $33.9 million in the first quarter of 2010. Diluted earnings per share was $1.71 for the first quarter of 2011 compared to diluted earnings per share of $1.53 in the first quarter of 2010, an increase of 11.8%. The increase in diluted earnings per share for the first quarter of 2011 was favorably impacted by the repurchase of 2.8 million shares of stock since the first quarter of 2010.

The Company’s Board of Directors declared a cash dividend of $0.20 per share on February 22, 2011 that was paid on April 21, 2011. On May 3, 2011, the Company’s Board of Directors declared a cash dividend of $0.20 per share to be paid on July 7, 2011 to stockholders of record as of June 2, 2011.

Michael Magusiak, President and Chief Executive Officer, stated that, “Our financial performance during the first quarter of 2011, including a comparable store sales increase of 1.1% and operating cash flow of $88.5 million, reflects the strength of our brand and the quality implementation of our strategies. Our significant operating cash flow enables us to grow our concept with new stores, execute a strong existing store capital plan that will impact approximately 200 stores this year, and continue to return a significant amount of capital to our shareholders in the form of share repurchases and cash dividends.”

Mr. Magusiak also stated, “During 2010, we repurchased approximately $78 million of our common stock totaling approximately 2.2 million shares, which represented approximately 10% of our weighted average diluted shares outstanding at the end of the 2010 fiscal year. During the first quarter of 2011, we again confirmed our long-term commitment to our stock repurchase plan by repurchasing approximately $22 million of our common stock totaling approximately 0.6 million shares, representing 3% of weighted average diluted shares outstanding at the end of the first quarter of 2011. In addition, during the first quarter of 2011, we initiated a quarterly dividend of $0.20 per share, or $0.80 per share on an annual basis. We intend to pay regular quarterly dividends for the foreseeable future including our recent announcement of our second quarter of 2011 dividend of $0.20 per share.”

Business Outlook:

Based on its current estimates, the Company is projecting fiscal year 2011 diluted earnings per share to be in a range of $3.00 to $3.10. This guidance incorporates the following assumptions for the 2011 fiscal year:

comparable store sales up 1.0% to 2.0%;
five additional Company-owned stores, inclusive of three relocations;
average cheddar block prices in a range of $1.60 to $1.80 per pound;
combined depreciation and rent expense will increase approximately 6% from the prior year;
advertising expense as a percentage of total revenues will decrease approximately 0.1 percentage points;
effective tax rate of approximately 38.7%;
capital expenditures will range from $92.0 million to $93.0 million, impacting approximately 200 stores and the development of approximately five Company-owned stores, inclusive of three relocations;
intend to repurchase Company common stock on an opportunistic basis; and
two additional quarterly dividend payments during fiscal 2011.

We estimate that diluted earnings per share for the second quarter of 2011 will be in a range of $0.28 to $0.32.

CEC ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts)

	Three Months Ended
	April 3,				April 4,
	2011				2010

REVENUES
Food and beverage sales	$	123,757	48.3	%	$	121,016	49.1	%
Entertainment and merchandise sales		131,459	51.3	%		124,184	50.4	%
Company store sales		255,216	99.6	%		245,200	99.5	%
Franchise fees and royalties		1,186	0.5	%		1,127	0.5	%
Total revenues		256,402	100.0	%		246,327	100.0	%

OPERATING COSTS AND EXPENSES
Company store operating costs:
Cost of food and beverage ⁽¹⁾		28,903	23.4	%		27,619	22.8	%
Cost of entertainment and merchandise ⁽²⁾		10,160	7.7	%		10,050	8.1	%
Total cost of food, beverage, entertainment and merchandise ⁽³⁾		39,063	15.3	%		37,669	15.4	%
Labor expenses ⁽³⁾		63,637	24.9	%		60,595	24.7	%
Depreciation and amortization ⁽³⁾		20,752	8.1	%		19,606	8.0	%
Rent expense ⁽³⁾		18,485	7.2	%		17,486	7.1	%
Other store operating expenses ⁽³⁾		32,994	12.9	%		31,034	12.7	%
Total Company store operating costs ⁽³⁾		174,931	68.5	%		166,390	67.9	%
Advertising expense		9,067	3.5	%		9,037	3.7	%
General and administrative expenses		14,055	5.5	%		13,685	5.6	%
Total operating costs and expenses		198,053	77.2	%		189,112	76.8	%

Operating income		58,349	22.8	%		57,215	23.2	%
Interest expense		2,754	1.1	%		2,670	1.1	%

Income before income taxes		55,595	21.7	%		54,545	22.1	%
Income taxes		21,513	8.4	%		20,683	8.4	%
Net income	$	34,082	13.3	%	$	33,862	13.7	%
Earnings per share:
Basic	$	1.71			$	1.53
Diluted	$	1.71			$	1.53
Weighted average shares outstanding:
Basic		19,938				22,076
Diluted		19,979				22,106

___________________
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. The percentage amounts for the components of cost of food, beverage, entertainment and merchandise do not sum 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 and entertainment and merchandise sales, as opposed to total Company store sales.

CEC ENTERTAINMENT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands)

	April 3,		January 2,
	2011		2011
ASSETS

Current assets:
Cash and cash equivalents	$	20,252	$	19,269
Other current assets		52,366		68,084
Total current assets		72,618		87,353
Property and equipment, net		679,918		683,192
Other noncurrent assets		8,127		7,484

Total assets	$	760,663	$	778,029

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Current portion of debt	$	957	$	936
Other current liabilities		91,953		88,138
Total current liabilities		92,910		89,074
Debt, less current portion		347,622		387,326
Other noncurrent liabilities		153,248		143,567
Total liabilities		593,780		619,967

Stockholders’ equity		166,883		158,062

Total liabilities and stockholders’ equity	$	760,663	$	778,029

CEC ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)

	Three Months Ended
	April 3,			April 4,
	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	34,082		$	33,862
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		20,914			19,797
Deferred income taxes		10,007			(1,255	)
Stock-based compensation expense		1,835			1,912
Other adjustments		(9	)		132
Changes in operating assets and liabilities:
Operating assets		(215	)		11,864
Operating liabilities		21,847			25,445
Net cash provided by operating activities		88,461			91,757
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(22,390	)		(20,954	)
Other investing activities		(524	)		(1,124	)
Net cash used in investing activities		(22,914	)		(22,078	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on revolving credit facility		(40,000	)		(49,800	)
Exercise of stock options		82			2,385
Payment of taxes for returned restricted shares		(2,725	)		(2,732	)
Treasury stock acquired		(22,463	)		(16,916	)
Other financing activities		465			352
Net cash used in financing activities		(64,641	)		(66,711	)
Effect of foreign exchange rate changes on cash		77			(38	)
Change in cash and cash equivalents		983			2,930
Cash and cash equivalents at beginning of period		19,269			17,361
Cash and cash equivalents at end of period	$	20,252		$	20,291

CEC ENTERTAINMENT, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(in thousands)

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

	2010			2009			2008			2007			2006
	(Unaudited)

Revenues	$	817,248		$	818,346		$	814,509		$	785,322		$	772,553

Net income	$	54,034		$	61,194		$	56,494		$	55,921		$	68,257
Add:
Income taxes		38,726			37,754			34,137			35,453			43,120
Interest expense		12,142			12,017			17,389			13,170			9,508
Depreciation and amortization		80,679			78,071			75,445			71,919			65,392
EBITDA	$	185,581		$	189,036		$	183,465		$	176,463		$	186,277

EBITDA as a percent of revenues		22.7	%		23.1	%		22.5	%		22.5	%		24.1	%

	Three Months Ended
	April 3,			April 4,
	2011			2010
	(Unaudited)
Revenues	$	256,402		$	246,327

Net income	$	34,082		$	33,862
Add:
Income taxes		21,513			20,683
Interest expense		2,754			2,670
Depreciation and amortization		20,914			19,797
EBITDA	$	79,263		$	77,012

EBITDA as a percent of revenues		30.9	%		31.3	%

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 3,		April 4,
	2011		2010
	(Unaudited)

Cash provided by operating activities	$	88,461	$	91,757
Less:
Capital expenditures		22,390		20,954
Free Cash Flow	$	66,071	$	70,803

CEC ENTERTAINMENT, INC. STORE COUNT INFORMATION

	Three Months Ended
	April 3,		April 4,
	2011		2010

Number of Company-owned stores:
Beginning of period	507		497
New⁽¹⁾	1		-
Acquired from franchisees	-		1
Closed⁽¹⁾	(1	)	-
End of period	507		498

Number of franchised stores:
Beginning of period	47		48
New	1		1
Acquired by the Company	-		(1	)
Closed	(1	)	-
End of period	47		48