CEC Entertainment Reports Second Quarter Results

CEC Entertainment, Inc. (NYSE: CEC) today announced its financial results for its second quarter ended June 30, 2013. Total revenues for the second quarter of 2013 increased 5.2%, or $9.5 million, to $191.9 million from $182.4 million for the second quarter of 2012. The increase primarily related to a 2.9% increase in comparable store sales, as well as additional revenues generated from new store development.

Net income for the second quarter ended June 30, 2013 increased 77.5%, or $3.1 million, to $7.2 million as compared to $4.1 million for the second quarter of 2012. Diluted earnings per share increased to $0.42 per share for the second quarter of 2013 from $0.23 per share for the second quarter of 2012.

For the first six months of 2013, total revenues increased 4.2%, or $18.0 million, to $447.2 million as compared to $429.2 million for the first six months of 2012. The increase in total revenues was primarily related to a 2.2% increase in comparable store sales, as well as additional revenues generated from new store development.

Net income for the first six months of 2013 increased 11.3%, or $4.1 million, to $40.5 million as compared to $36.4 million for the first six months of 2012. Diluted earnings per share for the first six months of 2013 increased to $2.34 per share as compared to diluted earnings per share of $2.05 for the first six months of 2012. Diluted earnings per share for the first six months of 2013 benefitted approximately $0.06 from our repurchase of approximately one million shares of our common stock since the beginning of the 2012 fiscal year.

On July 29, 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 October 3, 2013 to stockholders of record as of September 5, 2013.

Michael Magusiak, President and Chief Executive Officer, stated, “Our management team is pleased with the revenue and profit results of the second quarter and first half of 2013. Revenue in the second quarter increased 5.2%, driven by our 2.9% growth in comparable store sales and new store development. The combination of increased revenue and the implementation of our profit strategies improved our store level operating margins by 250 basis points.”

Magusiak added, “We believe that we have developed a solid plan to increase comparable store sales, grow our concept with both domestic and international new locations and improve our profitability. Our team is focused and dedicated to executing and continuously improving our strategy.”

Business Outlook:

Through the end of July, our comparable store sales have increased 1.6%. We continue to project comparable store sales of 1.5% to 2.5% for fiscal 2013, and we are increasing our diluted earnings per share guidance to be in a range of $2.90 to $3.05, including the following assumptions:
  • 12-15 new Company-owned stores, including one store relocation;
  • Average cheese block prices in the range of $1.75 to $1.85 per pound;
  • Depreciation and amortization to remain relatively flat with the prior year;
  • 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 $75 to $80 million; and
  • Payment of four quarterly dividends totaling approximately $17 million.

Second Quarter 2013 Conference Call:

The Company will host a conference call Thursday, August 1, 2013, at 3:30 p.m. Central Time to discuss its second quarter 2013 financial results and business outlook. 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 for a minimum of 60 days.

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 567 Chuck E. Cheese’s stores located in 47 states and nine 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 $10 million to schools and non-profit institutions through its fundraising programs. For more information, see the Company's website at www.chuckecheese.com.

Cautionary Statement Regarding Forward-Looking Statements:

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 Part I, Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2012, filed with the Securities and Exchange Commission (“SEC”) on February 21, 2013. 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 strategic plan;
  • Competition in both the restaurant and entertainment industries;
  • Changes in consumer discretionary spending;
  • Impacts on our business and financial results from economic uncertainty in the U.S. and Canada;
  • Negative publicity concerning food quality, health, general safety and other issues;
  • Increases in food, labor and other operating costs;
  • Unanticipated costs and delays in implementing our strategic plan;
  • Government regulations, including health care reform;
  • Existence or occurrence of certain public health issues;
  • Changes in consumers’ health, nutrition and dietary preferences;
  • Any disruption of our commodity distribution system, which currently utilizes a single distributor for most of our products and supplies;
  • Product liability claims and product recalls;
  • Inadequate insurance coverage;
  • Disruptions of our information technology systems and technologies;
  • Litigation risks;
  • Our dependence on a limited number of suppliers for our games, rides, redemption prizes and merchandise;
  • Adverse effects of local conditions, natural disasters and other events;
  • Increases in our leverage;
  • Loss of certain key personnel;
  • Fluctuations in our quarterly results of operations due to seasonality;
  • Our ability to adequately protect our trademarks or other proprietary rights;
  • Risks in connection with owning and leasing real estate; 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 were 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 were 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
June 30,     July 1, June 30,     July 1,
2013 2012 2013 2012
       
REVENUES:        
Food and beverage sales $ 86,517 45.1 % $ 84,882

46.5

%
$ 202,318 45.2 % $ 200,784 46.8 %
Entertainment and merchandise sales   103,926 54.1 %   96,274 52.8 %   242,328 54.2 %   225,798 52.6 %
Total Company store sales 190,443 99.2 % 181,156 99.3 % 444,646 99.4 % 426,582 99.4 %
Franchise fees and royalties   1,501 0.8 %   1,259 0.7 %   2,601 0.6 %   2,591 0.6 %
Total revenues   191,944 100.0 %   182,415 100.0 %   447,247 100.0 %   429,173 100.0 %
 
OPERATING COSTS AND EXPENSES:

Company store operating costs:

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

 

20,926

24.2

%

21,025

24.8

%

48,965

24.2

%

49,236

24.5

%

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

6,948

6.7

%
 

7,170

7.4

%
 

16,280

6.7

%
 

16,145

7.2

%

Total cost of food, beverage, entertainment and merchandise(3)
27,874

14.6

%
28,195

15.6

%
65,245

14.7

%
65,381

15.3

%
Labor expenses(3) 55,085 28.9 % 53,385 29.5 % 117,940 26.5 % 115,053 27.0 %
Depreciation and amortization(3) 19,207 10.1 % 19,091 10.5 % 39,063 8.8 % 38,830 9.1 %
Rent expense (3) 19,217 10.1 % 18,957 10.5 % 38,976 8.8 % 37,915 8.9 %
Other store operating expenses(3)   31,872 16.7 %   30,702 16.9 %   64,374 14.5 %   62,266 14.6 %
Total Company store operating costs(3) 153,255

80.5

%
150,330

83.0

%
325,598

73.2

%
319,445

74.9

%

Other costs and expenses:
Advertising expense 10,618 5.5 % 8,106 4.4 % 22,316 5.0 % 16,981 4.0 %
General and administrative expenses 14,380 7.5 % 13,062 7.2 % 29,421 6.6 % 26,704 6.2 %
Asset impairments   226 0.1 %   2,374 1.3 %   226 0.1 %   2,723 0.6 %
Total operating costs and expenses   178,479

93.0

%
  173,872

95.3

%
  377,561

84.4

%
  365,853

85.2

%
Operating income 13,465 7.0 % 8,543 4.7 % 69,686 15.6 % 63,320 14.8 %
Interest expense   2,039 1.1 %   2,083 1.1 %   4,231 0.9 %   4,054 0.9 %
Income before income taxes 11,426 6.0 % 6,460 3.5 % 65,455 14.6 % 59,266 13.8 %
Income taxes   4,187 2.2 %   2,381 1.3 %   24,959 5.6 %   22,883 5.3 %
Net income $ 7,239 3.8 % $ 4,079 2.2 % $ 40,496 9.1 % $ 36,383 8.5 %

Earnings per share:
Basic $ 0.42 $ 0.23 $ 2.35 $ 2.06
Diluted $ 0.42 $ 0.23 $ 2.34 $ 2.05

Weighted average common shares outstanding:
Basic 17,057 17,599 17,211 17,692
Diluted 17,138 17,640 17,295 17,745
Cash dividends declared per share $ 0.24 $ 0.22 $ 0.48 $ 0.44
 

_______________
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)
 
June 30, December 30,
2013 2012
ASSETS
 
Current assets:
Cash and cash equivalents $ 20,195 $ 19,636
Other current assets   58,446   66,423
Total current assets 78,641 86,059
Property and equipment, net 691,812 703,956
Other noncurrent assets   12,612   11,791
 
Total assets $ 783,065 $ 801,806
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
Capital lease obligations, current portion $ 1,003 $ 1,060
Other current liabilities   87,527   82,080
Total current liabilities 88,530 83,140
Capital lease obligations, less current portion 20,893 21,656
Revolving credit facility borrowings 352,000 389,500
Other noncurrent liabilities   163,484   164,236
Total liabilities 624,907 658,532
 
Stockholders’ equity   158,158   143,274
 
Total liabilities and stockholders’ equity $ 783,065 $ 801,806
 
     
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
Six Months Ended
June 30,     July 1,
2013 2012
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 40,496 $ 36,383
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 39,429 39,208
Deferred income taxes (1,552 ) (403 )
Stock-based compensation expense 4,225 3,705
Other adjustments (1,036 ) 3,008
Changes in operating assets and liabilities:
Operating assets 1,175 (5,797 )
Operating liabilities   9,955     3,683  
Net cash provided by operating activities   92,692     79,787  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (32,080 ) (50,345 )
Other investing activities   2,730     270  
Net cash used in investing activities   (29,350 )   (50,075 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on revolving credit facility (37,500 ) (6,200 )
Dividends paid (4,372 ) (8,016 )
Restricted stock returned for payment of taxes (2,163 ) (2,612 )
Purchases of treasury stock (18,112 ) (14,353 )
Other financing activities   (275 )   229  
Net cash used in financing activities   (62,422 )   (30,952 )
 
Effect of foreign exchange rate changes on cash   (361 )   3  
 
Change in cash and cash equivalents 559 (1,237 )
 
Cash and cash equivalents at beginning of period   19,636     18,673  
 
Cash and cash equivalents at end of period $ 20,195   $ 17,436  
 

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
June 30,     July 1, June 30,     July 1,
2013 2012 2013 2012

 
(in thousands, except percentages)
 

Total revenues
$ 191,944   $ 182,415   $ 447,247   $ 429,173  
 

Net income
$ 7,239 $ 4,079 $ 40,496 $ 36,383
Add:
Interest expense 2,039 2,083 4,231 4,054
Income taxes 4,187 2,381 24,959 22,883
Depreciation and amortization   19,412     19,272     39,429     39,208  

EBITDA
$ 32,877   $ 27,815   $ 109,115   $ 102,528  
 

EBITDA as a percent of total revenues

17.1

%

15.2

%

24.4

%

23.9

%
 

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 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:
      Six Months Ended
June 30,     July 1,
2013 2012
(in thousands)
 
Cash provided by operating activities $ 92,692 $ 79,787
Less:
Capital expenditures and franchise acquisitions 32,080 50,345
Dividend payments  

4,372
  8,016
Free Cash Flow $ 56,240 $ 21,426
 

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, 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
June 30,     July 1, June 30,    

July 1,
2013 2012 2013 2012
 

Number of Company-owned stores:
Beginning of period 515 508 514 507
New(1) 2 5 3 5
Acquired from franchisees - - - 1
Closed(1) (3 ) (3 ) (3 ) (3 )
End of period 514   510   514   510  
 

Number of franchised stores:
Beginning of period 51 50 51 49
New(2) 3 - 3 2
Acquired by the Company - - - (1 )
Closed(2) (1 ) -   (1 ) -  
End of period 53   50   53   50  
___________________

(1)
  For the three and six months ended July 1, 2012, the number of new and closed Company-owned stores include two stores that were relocated.

(2)
For the three and six months ended June 30, 2013, the number of new and closed franchised stores included one store that was relocated.

Copyright Business Wire 2010

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