CEC Entertainment Reports Financial Results for the First Quarter of 2011
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 | |||||
______________
(1) Both the new and closed store in the first quarter of 2011 represents our relocated store.
