BWLD Buffalo Wild Wings, Inc. (delisted)

Texas-based CEC Entertainment Inc. (CEC), which operates and franchises family dining and entertainment centers, reported first quarter 2011 earnings of $1.71 per share, which surpassed the Zacks Consensus Estimate by 10 cents. Reported earnings also beat the prior-year quarter’s earnings of $1.53.

Total revenue climbed 4.1% year over year to $256.4 million, primarily due to higher comparable store sales (up 1.1%). Sales at company-operated restaurants rose 4.1% to $255.2 million and franchise fees and royalties grew 5.2% to $1.2 million.

Turning to the cost structure, cost of food and beverage, as a percentage of food and beverage sales, spiked 60 basis points (bps) to 23.4% driven by higher cheese, dough and produce costs. Labor expense, as a percentage of company-store sales, also rose 20 bps to 24.9% during the quarter, mainly due to a hike of 1% in the average hourly wage rate and higher benefits.

Depreciation and amortization expense increased 5.8% to $20.8 million on account of the ongoing capital investment initiatives at existing stores and new store development. Store rent expense upped 5.7% to $18.5 million attributed to a rise in leased stores, arising from new store development. As a consequence, operating income declined 40 basis points year over year to 22.8%.

Store Update

At quarter end, CEC had 507 company-operated stores and 47 franchised stores.

Financials

At quarter end, CEC’s cash and cash equivalents were $20.3 million, while its outstanding debt stood at $347.6 million. During the quarter, cash provided by operating activities was $88.5 million and capital expenditure was $22.4 million.

CEC continues to enhance shareholder’s value through repurchase of around 0.6 million shares for $22 million and the company also initiated a quarterly dividend of 20 cents per share, implying an annual dividend of 80 cents.

For 2011, the company expects capital expenditure in the range of $92.0 million to $93.0 million.

Outlook
 
For fiscal 2011, CEC raised its earnings outlook to $3.00–$3.10 from $$2.95–$3.05. However, the company continues to expect same-store sales to be up 1% to 2%.  

For the second quarter of 2011, the company expects earnings in the range of 28 cents to 32 cents.

Our Take

We expect estimates to go up in the coming days, given the company posted better-than-expected results, raised its guidance and introduced a quarterly dividend. The company also remains focused on improving comps, unit expansion in both domestic and international market and rewarding shareholders.

CEC currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

One of its peers Buffalo Wild Wings Inc(BWLD) reported first quarter 2011 earnings of 81 cents per share, beating the Zacks Consensus Estimate of 73 cents on the back of higher same-store sales growth and lower wing costs.

 
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