CEC Entertainment Reports Financial Results for the 2012 Fourth Quarter and Fiscal Year

2013-02-25
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  • CEC Entertainment Total revenues for the fourth quarter of 2012 decreased 0.4%, or $0.8 million, to $177.8 million from $178.6 million for the fourth quarter of 2011. The decrease primarily related to a 2.2% decrease in comparable store sales, partially offset by additional revenues from thirteen new stores opened or acquired, net of six closed stores, since the end of 2011.

    CEC Entertainment, Inc. (NYSE: CEC) announced its financial results for its fourth quarter ended December 30, 2012. Total revenues for the fourth quarter of 2012 decreased 0.4%, or $0.8 million, to $177.8 million from $178.6 million for the fourth quarter of 2011. The decrease primarily related to a 2.2% decrease in comparable store sales, partially offset by additional revenues from thirteen new stores opened or acquired, net of six closed stores, since the end of 2011.

    The fourth quarter 2012 was a net loss of $0.6 million compared to net income of $2.7 million for the fourth quarter of 2011. The $0.6 million net loss in the fourth quarter of 2012 includes $2.0 million of asset impairment charges, net of tax. Diluted loss per share was $0.03 for the fourth quarter of 2012 compared to diluted earnings per share of $0.15 for the fourth quarter of 2011.

    Total revenues for fiscal year 2012 decreased 2.2%, or $17.7 million, to $803.5 million compared to $821.2 million for the fiscal year 2011. The decrease in total revenues was primarily related to a 2.9% decrease in comparable store sales, partially offset by additional revenues from thirteen new stores opened or acquired, net of six stores closed, since the end of 2011.

    Net income for the fiscal year 2012 decreased 20.7%, or $11.4 million, to $43.6 million compared to $55.0 million for the fiscal year 2011. Diluted earnings per share decreased to $2.47 per share in fiscal year 2012 from $2.88 per share in fiscal year 2011. The decrease primarily related to the decrease in net income. Diluted earnings per share for the fiscal year 2012 benefitted approximately $0.17 from our repurchase of 2.7 million shares of our common stock since the beginning of fiscal year 2011.

    On February 19, 2013, the Company’s Board of Directors declared a cash dividend of $0.24 per share. This cash dividend is scheduled to be paid on April 18, 2013 to stockholders of record as of March 21, 2013.

    Michael Magusiak, President and Chief Executive Officer, stated, “I believe that we have developed a very solid sales and earnings plan for 2013. We started the year off with positive comparable store sales in January but had a substantial reversal during the first three weeks of February. We evaluated all of our strategies that could impact sales and determined that we made no significant operating, pricing or marketing shifts since the beginning of the year that could explain the sales decline in February. Therefore, we believe the factors negatively impacting sales are primarily external in nature.”

    Magusiak continued, “We believe the delay in income tax refunds, the expiration of the payroll tax holiday and the increase in gas prices have had a disproportionate impact on our guests as they are highly sensitive to any changes in their disposable income. Despite the current economic environment, we remain committed to the quality execution of our sales initiatives and are focused on increasing sales in 2013.”

    Business Outlook:

    Our previous guidance for fiscal year 2013 was a 2% to 3% increase in comparable store sales, resulting in diluted earnings per share in the range of $2.80 to $3.00. Through week seven of 2013, comparable store sales have decreased 3.2%, which we believe can be attributed to the delay in the federal income tax refunds compared to the prior year, the elimination of the 2% payroll tax holiday and increases in gasoline prices.

    Given the uncertainty surrounding any potential longer term impacts to comparable store sales from the payroll tax holiday and gasoline prices, we estimate if comparable store sales are up 1% to 2% for fiscal year 2013 we would expect diluted earnings per share to be in a range of $2.70 to $2.85, including the following assumptions:

    • 15 new Company-owned stores, including one store relocation;
    • Average cheese block prices in the range of $1.70 to $1.80 per pound;
    • Depreciation and amortization to remain relatively flat;
    • Rent expense to increase approximately 4-5% from the prior year;
    • Advertising expense to increase approximately $6 million from the prior year;
    • Capital expenditures to range from approximately $82 to $84 million; and
    • Payment of four quarterly dividends totaling approximately $17 million.

    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 565 Chuck E. Cheese’s stores located in 47 states and eight foreign countries and territories. Currently, 514 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 pizzas, sandwiches, wings, appetizers, 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. 

       
     
    CEC ENTERTAINMENT, INC.
    CONSOLIDATED STATEMENTS OF EARNINGS
    (Unaudited)
    (in thousands, except per share information)
     
    Quarter Ended Fiscal Year Ended
    December 30,   January 1, December 30,   January 1,
    2012 2012 2012 2012
       
    REVENUES:    
    Food and beverage sales $ 81,758 46.0 % $ 84,378 47.3 % $ 372,948

    46.4

    %

    $ 388,908 47.4 %
    Entertainment and merchandise sales   94,968   53.4 %   93,241 52.2 %   425,989 53.0 %   426,986 52.0 %
     
    Total Company store sales 176,726 99.4 % 177,619 99.5 % 798,937 99.4 % 815,894 99.4 %
    Franchise fees and royalties   1,031   0.6 %   944 0.5 %   4,543 0.6 %   5,284 0.6 %
     
    Total revenues   177,757   100.0 %   178,563 100.0 %   803,480 100.0 %   821,178 100.0 %
     
    OPERATING COSTS AND EXPENSES:

    Company store operating costs:

    Cost of food and beverage (exclusive of items shown separately below) (1) 21,554

    26.4

    %

    21,803

    25.8

    %

    93,417

    25.0

    %

    95,989

    24.7

    %

    Cost of entertainment and merchandise (exclusive of items shown separately below) (2)   7,007  

     

    7.4

     

    %

      6,847

     

    7.3

     

    %

      30,855

     

    7.2

     

    %

      32,362

     

    7.6

     

    %

    Total cost of food, beverage, entertainment and merchandise(3) 28,561

    16.2

    %

    28,650

    16.1

    %

    124,272

    15.6

    %

    128,351

    15.7

    %

     
    Labor expenses (3) 53,413 30.2 % 53,300 30.0 % 223,605 28.0 % 222,596 27.3 %
    Depreciation and amortization (3) 20,067 11.4 % 19,229 10.8 % 78,769 9.9 % 80,826 9.9 %
    Rent expense (3) 17,871 10.1 % 18,506 10.4 % 75,312 9.4 % 74,992 9.2 %
    Other store operating expenses (3)   31,088   17.6 %   30,057 16.9 %   126,855 15.9 %   126,847 15.5 %
    Total Company store operating costs (3) 151,000

    85.4

    %

    149,742

    84.3

    %

    628,813

    78.7

    %

    633,612

    77.7

    %

     

    Other costs and expenses:

    Advertising expense 8,460 4.8 % 7,498 4.2 % 35,407 4.4 % 34,989 4.3 %
    General and administrative expenses 13,802 7.8 % 13,781 7.7 % 53,437 6.7 % 51,859 6.3 %
    Asset impairments   3,211   1.8 %   1,479 0.8 %   6,752 0.8 %   2,739 0.3 %
    Total operating costs and expenses   176,473  

    99.3

    %

      172,500

    96.6

    %

      724,409

    90.2

    %

      723,199

    88.1

    %

    Operating income 1,284 0.7 % 6,063 3.4 % 79,071 9.8 % 97,979 11.9 %
     
    Interest expense   3,316   1.9 %   2,254 1.3 %   9,401 1.2 %   8,875 1.1 %
    Income (loss) before income taxes (2,032 ) (1.1 )% 3,809 2.1 % 69,670 8.7 % 89,104 10.9 %
     
    Income taxes   (1,445 ) (0.8 )%   1,081 0.6 %   26,080 3.2 %   34,142 4.2 %
    Net income (loss) $ (587 ) (0.3 )% $ 2,728 1.5 % $ 43,590 5.4 % $ 54,962 6.7 %
     

    Earnings per share:

    Basic $ (0.03 ) $ 0.15 $ 2.48 $ 2.88
    Diluted $ (0.03 ) $ 0.15 $ 2.47 $ 2.88
     

    Weighted average common shares outstanding:

    Basic 17,398 18,280 17,545 19,072
    Diluted 17,398 18,363 17,618 19,121
    Cash Dividends Declared Per Share $ 0.24 $ 0.22 $ 0.90 $ 0.82

    ___________________

     
    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.

       
     
    CEC ENTERTAINMENT, INC.
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (Unaudited)
    (in thousands)
     
    December 30, January 1,
    2012 2012
    ASSETS
     
    Current assets:
    Cash and cash equivalents $ 19,636 $ 18,673
    Other current assets   66,423   62,008
    Total current assets 86,059 80,681
    Property and equipment, net 703,956 683,390
    Other noncurrent assets   11,791   8,400
     
    Total assets $ 801,806 $ 772,471
     
    LIABILITIES AND STOCKHOLDERS’ EQUITY
     
    Current liabilities:
    Capital lease obligations, current portion $ 1,060 $ 834
    Other current liabilities   82,080   82,854
    Total current liabilities 83,140 83,688
    Capital lease obligations, less current portion 21,656 10,075
    Revolving credit facility borrowings 389,500 389,600
    Other noncurrent liabilities   164,236   164,931
    Total liabilities 658,532 648,294
     
    Stockholders’ equity   143,274   124,177
     
    Total liabilities and stockholders’ equity $ 801,806 $ 772,471
     
     
    CEC ENTERTAINMENT, INC.
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited)
    (in thousands)
     
    Fiscal Year Ended
    December 30,   January 1,
    2012 2012
     
    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income $ 43,590 $ 54,962
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization 79,510 81,560
    Deferred income taxes (836 ) 20,292
    Stock-based compensation expense 7,468 7,185
    Other adjustments 8,987 4,534
    Changes in operating assets and liabilities:
    Operating assets (6,331 ) 678
    Operating liabilities   4,704     8,022  
    Net cash provided by operating activities   137,092     177,233  
     
    CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment (99,489 ) (94,669 )
    Other investing activities   586     17  
    Net cash used in investing activities   (98,903 )   (94,652 )
     
    CASH FLOWS FROM FINANCING ACTIVITIES:
    Net proceeds (repayments) on revolving credit facility (100 ) 12,600
    Dividends paid (19,846 ) (11,487 )
    Restricted stock returned for payment of taxes (2,656 ) (2,762 )
    Purchases of treasury stock (14,353 ) (79,781 )
    Other financing activities   (330 )   (1,543 )
    Net cash used in financing activities   (37,285 )   (82,973 )
     
    Effect of foreign exchange rate changes on cash   59     (204 )
     
    Change in cash and cash equivalents 963 (596 )
     
    Cash and cash equivalents at beginning of period   18,673     19,269  
     
    Cash and cash equivalents at end of period $ 19,636   $ 18,673  
     
     

    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:

      Fiscal Year Ended
    December 30,   January 1,   January 2,   January 1,   December 28,
    2012 2012 2011 2010 2008

     

    Total revenues $ 803,480   $ 821,178   $ 817,248   $ 818,346   $ 814,509  

    Net income

    $ 43,590 $ 54,962 $ 54,034 $ 61,194 $ 56,494
     
    Add:
    Income taxes 26,080 34,142 38,726 37,754 34,137
    Interest expense 9,401 8,875 12,142 12,017 17,389
    Depreciation and amortization   79,510     81,560     80,679     78,071     75,445  
     
    EBITDA $ 158,581   $ 179,539   $ 185,581   $ 189,036   $ 183,465  

    EBITDA as a percent of total revenues

    19.7

    %

    21.9

    %

    22.7

    %

    23.1

    %

    22.5

    %

     

    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 interest expense, income taxes 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:

      Fiscal Year Ended
    December 30,   January 1,
    2012 2012
    (in thousands)
     
    Cash provided by operating activities $ 137,092 $ 177,233
    Less:
    Capital expenditures 99,489 94,669
    Dividend payments   19,846   11,487
     
    Free Cash Flow $ 17,757 $ 71,077
     

    Free Cash Flow, a non-GAAP financial measure, is defined by the Company as cash provided by operating activities less capital expenditures 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 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   Fiscal Year Ended
    December 30,   January 1, December 30,   January 1,
    2012 2012 2012 2012
     

    Number of Company-owned stores:

    Beginning of period 511 507 507 507
    New (1) 5 2 12 4
    Acquired from franchisees - - 1 -
    Closed (1) (2 ) (2 ) (6 ) (4 )
    End of period 514   507   514   507  
     

    Number of franchised stores:

    Beginning of period 51 49 49 47
    New - - 3 3
    Acquired by the Company - - (1 ) -
    Closed -   -   -   (1 )
    End of period 51   49   51   49  

    ___________________

    (1) The number of new Company-owned stores during the fiscal year ended December 30, 2012 included three stores that were relocated. The number of new Company-owned stores during the three month period ended January 1, 2012 included the relocation of one store, and the number of new Company-owned stores during the fiscal year ended January 1, 2012 included the relocation of two stores.



    Logos, product and company names mentioned are the property of their respective owners.

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