California Pizza Kitchen Announces Financial Results for the Second Quarter of 2007

California Pizza Kitchen Announces Financial Results for the Second Quarter of 2007 and Board of Directors Authorizes a $50.0 Million Stock Repurchase

LOS ANGELES–(BUSINESS WIRE)–California Pizza Kitchen, Inc. (Nasdaq:CPKI) today reported revenues and net income for the second quarter ended July 1, 2007. Highlights for the second quarter of 2007 relative to the same quarter a year ago were as follows:

  • Total revenues grew 16.4% to $158.6 million
  • Comparable restaurant sales increased 5.4%
  • Net income of $6.3 million, or $0.21 per diluted share, including $0.8 million, or $0.02 per diluted share, in early termination costs related to one unopened CPK/ASAP location. Diluted share calculations were adjusted for the three-for-two stock split effective June 19, 2007.

Rick Rosenfield and Larry Flax, co-CEOs of California Pizza Kitchen, Inc., stated, “We are pleased to be among the few casual dining restaurant concepts this quarter to post positive guest counts and mix shifts, while also benefiting from recent price increases. We credit CPK’s commitment to menu innovation, customer service and the lifestyle component of our brand. These factors not only drove comparable restaurant sales, but positively affected restaurant level margins by 20 basis points year over year. In addition, we leveraged 40 basis points in general and administrative costs in a challenging environment, while delivering operating results in line with our previously-guided range.”

Average weekly sales for the Company’s 170 full service restaurants increased 4.8% to $68,535 for the second quarter of 2007 compared to $65,427 for the same quarter last year.

In the second quarter of 2007, the Company added two full service restaurants in Coral Gables, Florida and New York City. The Company’s franchise partner, HMSHost, also opened a CPK/ASAP location in Oakland Airport while an international franchise partner, Golden Pillars (H.K.) Ltd, opened a full service restaurant in Hong Kong, China.

For the third quarter of 2007, the Company intends to add six full service and one international franchise restaurant. These openings, together with a comparable restaurant sales increase of 2.0%-3.0% and an estimated $0.19 per diluted share charge primarily associated with store closure costs for four CPK/ASAPs, are expected to result in third quarter earnings per diluted share of $0.03-$0.04. The Company also provided earnings guidance of $0.58-$0.62 per diluted share for the 2007 fiscal year, adjusted for the three-for-two stock split effective June 19, 2007.

A summary of earnings estimates for the 2007 fiscal year is outlined in the table below:

 

Comparable Restaurant Sales Estimate Range

Revised Fiscal Year 2007 Earnings Estimate Range

 
2.0
%

 
3.0
%

 
Non-GAAP Net Income per Diluted Share Estimate

Before Additional Charges

$
0.83

$
0.87

 
Estimated Federal Minimum Wage Increase

(0.01
)

(0.01
)

 
Estimated Cheese Cost Increase

(0.02
)

(0.02
)

 
Estimated Interest Expense Increase Associated

with Stock Repurchase

(0.01
)

(0.01
)

 

 
Total Additional Charges

 
(0.04
)

 
(0.04
)
 

 

 
Subtotal before CPK/ASAP Closure Costs

 
0.79
 

 
0.83
 

 
Q2 Closure Costs for One CPK/ASAP

(0.02
)

(0.02
)

 
Q3 Estimated Closure Costs for Four CPK/ASAPs

 
(0.19
)

 
(0.19
)
 

 

 
GAAP Net Income per Diluted Share Estimate

$
0.58
 

$
0.62
 

Stock Repurchase Authorization

California Pizza Kitchen announced today that its Board of Directors authorized the repurchase of up to $50.0 million of common stock over the next two years. Such repurchases will be made from time to time in open market transactions and through privately negotiated transactions. Additionally, the repurchase program will operate under parameters established by the Board of Directors and as market conditions permit.

This authorization follows two similar repurchase programs authorized over the last three years that totaled $50.0 million. The Company recently completed its latest authorization on August 2, 2007. Since August 2004 the Company has repurchased 2,604,706 shares of common stock for total consideration of approximately $48.5 million, or an average of $18.61 per share.

The Company will hold a conference call today at approximately 5:00 pm ET to discuss second quarter results and full year 2007 estimates. A webcast of the conference call can be accessed at www.cpk.com.

California Pizza Kitchen, Inc., founded in 1985, is a leading casual dining chain. The Company’s full service restaurants feature an imaginative line of hearth-baked pizzas, including the original BBQ Chicken Pizza, and a broad selection of distinctive pastas, salads, soups, appetizers and sandwiches. The average guest check is approximately $13.30. As of August 9, 2007 the Company operates, licenses or franchises 215 restaurants, of which 184 are company-owned and 31 operate under franchise or license agreements. The Company also has a licensing agreement with Kraft Pizza Company, which manufactures and distributes a line of California Pizza Kitchen premium frozen pizzas.

California Pizza Kitchen, Inc. can be found on the internet at www.cpk.com.

This release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include projections of earnings, revenue or other financial items, statements of the plans, strategies and objectives of management for future operations, statements concerning proposed new products or developments, statements regarding future economic conditions or performance, statements of belief and statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “anticipate” and similar words.

Investors are cautioned that forward-looking statements are not guarantees of future performance and, therefore, undue reliance should not be placed on them. Our actual results may and will likely differ materially from the expectations referred to herein. Among the key factors that may have a direct bearing on our operating results, performance and financial condition are changing consumer preferences and demands, the execution of our expansion strategy, the continued availability of qualified employees and our management team, the maintenance of reasonable food and supply costs, our relationships with our distributors and numerous other matters discussed in the Company’s filings with the Securities and Exchange Commission. California Pizza Kitchen undertakes no obligation to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.

 
Selected Unaudited Consolidated Financial and Operating Data
(Dollars in thousands, except for per share and operating data)

 

 

Quarter Ended

Six Months Ended

July 1,

July 2,

July 1,

July 2,

 
2007
 

 
2006
 

 
2007
 

 
2006
 

 
Statement of Income:

 
Revenues:

Restaurant sales

$
156,592

$
134,604

$
304,436

$
263,122

Royalties from Kraft licensing agreement

1,073

785

1,786

1,321

Domestic franchise revenues

664

571

1,186

1,076

International franchise revenues

 
252
 

 
208
 

 
540
 

 
347
 
Total revenues

158,581

136,168

307,948

265,866

 
Costs and expenses:

Food, beverage and paper supplies

38,426

33,090

74,802

65,258

Labor (1)

56,912

49,272

113,111

96,899

Direct operating and occupancy

 
30,773
 

 
26,214
 

 
59,468
 

 
51,508
 
Cost of sales

126,111

108,576

247,381

213,665

 
General and administrative (2)

12,206

11,035

24,997

21,390

Depreciation and amortization

9,022

7,070

17,563

14,041

Pre-opening costs

852

800

2,203

1,433

Store closure costs

768

768

 

 

 

 
Total costs and expenses

148,959

127,481

292,912

250,529

 
Operating income

9,622

8,687

15,036

15,337

 
Other income:

Interest income

 
91
 

 
287
 

 
178
 

 
512
 
Total other income

 
91
 

 
287
 

 
178
 

 
512
 

 
Income before income tax provision

9,713

8,974

15,214

15,849

Income tax provision

 
3,393
 

 
2,961
 

 
5,297
 

 
5,230
 
Net income

$
6,320
 

$
6,013
 

$
9,917
 

$
10,619
 

 
Net income per common share:

Basic

$
0.22

$
0.20

$
0.34

$
0.36

Diluted

$
0.21

$
0.20

$
0.33

$
0.35

 
Shares used in computing net income per common share (in thousands) (3):

 
Basic

29,129

29,414

29,127

29,467

Diluted

30,236

30,099

30,163

30,198

 
Operating Data:

Restaurants open at end of period

213

193

213

193

Company-owned full service restaurants open at end of period

170

155

170

155

Average weekly company-owned full service restaurant sales

$
68,535

$
65,427

$
67,232

$
64,365

18-month comparable company-owned restaurant sales increase

5.4
%

4.8
%

5.1
%

5.6
%
 
 
 
 
 
 
 
 
 
(1) Labor expense for the three and six months ended July 1, 2007 includes approximately $201,000 and $420,000 of stock-based compensation, respectively, compared to $274,000 and $504,000 in the three and six months ended July 2, 2006, respectively.
 
(2) General and administrative expense for the three and six months ended July 1, 2007 includes approximately $1.5 million and $3.5 million of stock-based compensation, respectively, compared to $1.2 million and $2.5 million in the three and six months ended July 2, 2006, respectively.
 
(3) Includes effect of 3-for-2 stock split effective June 19, 2007.

 

Quarter Ended

Six Months Ended

July 1,

July 2,

July 1,

July 2,

2007

2006

2007

2006

 
Statement of Income Percentages (1):

 
Revenues:

Restaurant sales

98.7
%

98.9
%

98.9
%

99.0
%
Royalties from Kraft licensing agreement

0.7
%

0.6
%

0.6
%

0.5
%
Domestic franchise revenues

0.4
%

0.4
%

0.3
%

0.4
%
International franchise revenues

0.2
%

0.1
%

0.2
%

0.1
%
Total revenues

100.0
%

100.0
%

100.0
%

100.0
%

 
Costs and expenses:

Food, beverage and paper supplies

24.5
%

24.6
%

24.6
%

24.8
%
Labor (2)

36.3
%

36.6
%

37.2
%

36.8
%
Direct operating and occupancy

19.7
%

19.5
%

19.5
%

19.6
%
Cost of sales

80.5
%

80.7
%

81.3
%

81.2
%

 
General and administrative (3)

7.7
%

8.1
%

8.1
%

8.0
%
Depreciation and amortization

5.7
%

5.2
%

5.7
%

5.3
%
Pre-opening costs

0.5
%

0.6
%

0.7
%

0.5
%
Store closure costs

0.5
%

0.0
%

0.2
%

0.0
%

 

 

 

 
Total costs and expenses

93.9
%

93.6
%

95.1
%

94.2
%

 
Operating income

6.1
%

6.4
%

4.9
%

5.8
%

 
Other income:

Interest income

0.1
%

0.2
%

0.1
%

0.2
%
Total other income

0.1
%

0.2
%

0.1
%

0.2
%

 
Income before income tax provision

6.1
%

6.6
%

4.9
%

6.0
%
Income tax provision

2.1
%

2.2
%

1.7
%

2.0
%
Net income

4.0
%

4.4
%

3.2
%

4.0
%

 
(1) Percentages are expressed as a percentage of total revenues, except for cost of sales which is expressed as a percentage of restaurant sales.
 
(2) Labor percentage includes approximately 10 and 20 basis points of stock-based compensation in the three and six months ended July 1, 2007, respectively, compared to 20 basis points in each of the three and six months ended July 2, 2006.
 
(3) General and administrative percentage includes approximately 90 and 110 basis points of stock-based compensation in the three and six months ended July 1, 2007, respectively, compared to 90 basis points in each of the three and six months ended July 2, 2006.

 
Selected Consolidated Balance Sheet Information
(Dollars in thousands)

 

 
Selected Consolidated Balance

July 1,

December 31,
Sheet Information

2007

2006

 
Cash and cash equivalents

$
7,178

$
8,187
Total assets

339,779

310,513
Stockholders’ equity

225,888

208,343
California Pizza Kitchen, Inc.
Units Summary

 

Total Units at

Total Units at
Second Quarter 2007

April 1, 2007

Opened

Acquired

Closed

July 1, 2007
Company-owned full service domestic

168

2

170
Company-owned ASAP domestic

11

11
Company-owned LA Food Show

1

1
Franchised domestic

16

1

1

16
Franchised international

14
 
1
 

 

 
15
Total

210
 
4
 

 
1
 
213