California Pizza’s Profit Climbs

California Pizza Kitchen Inc. (CPKI - Analyst Report) recently reported third-quarter 2009 results with a mid-single digit fall in the top-line but a surprise double-digit rise in the bottom-line. Effective cost management and a lower tax rate have driven earnings growth. 

The quarterly earnings of 24 cents a share surpassed the Zacks Consensus Estimate by a penny, jumping 20% from 20 cents posted in the prior-year quarter. The casual dining operator now expects fourth-quarter 2009 earnings in the range of 16 cents to 18 cents a share. 

California Pizza Kitchen continues to experience fall in the top-line. After declining 2.2% and 3.2% year-on-year in the first and second quarters, respectively, total revenue dipped 5.3% to $164.8 million in the quarter under review. 

Restaurant sales slipped 5.7% to $161.2 million, royalties from the Kraft licensing agreement soared 35.2% to $2.5 million, domestic franchise revenue fell marginally by 1% to $714,000, and international franchise revenue plunged 18% to $468,000. 

Casual dining restaurant operators are facing the brunt of the global meltdown with sagging comparable-store sales and declining traffic, as cash-strapped consumers are dining out less and looking for cheaper alternatives such as fast food centers. Other operators in the casual dining segment are Darden Restaurants Inc. (DRI - Analyst Report), Brinker International Inc. (EAT - Snapshot Report), Cosi Inc. (COSI - Analyst Report) and Red Robin Gourmet Burgers Inc. (RRGB - Analyst Report). 

California Pizza Kitchen’s comparable restaurant sales for the quarter dipped 8%, after declining 6.5% and 5.9% in the second and first quarters of 2009. The restaurant chain expects fourth-quarter 2009 comps to fall within the range of 5.5% to 6.5%. 

Restaurant operating cash flow margin shrank 40 basis points (bps) to 17%, hurt by a 120 bps rise in labor costs to 37.8% and a 100 bps increase in operating and occupancy costs to 22.2%, partially offset by a 180 bps fall in food and beverage costs to 23%. 

During the quarter, California Pizza Kitchen opened one company-owned full service domestic restaurant and one franchised domestic restaurant, closing one company-owned full service domestic restaurant and one franchised domestic restaurant. Management expects to open one international full service franchise restaurant in fourth-quarter 2009. 

In fiscal year 2010, the company plans to open eight full service restaurants, while franchisees plan to open eight international and two domestic locations. Currently, the company operates 256 locations, of which 208 are company-owned and 48 are operated under franchise or license agreements. 

California Pizza Kitchen ended the quarter with cash and cash equivalents of $14.3 million, total debt of $37 million and shareholders’ equity of $197.5 million.