California Pizza Kitchen Inc. (CPKI) filed Quarterly Report for the period ended 2009-09-27.
California Pizza Kitchen Inc. is a leading casual dining chain in the premium pizza segment. 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 and sandwiches. Of the chain's two hundred seven restaurants one hundred seventy seven are company-owned and thirty operate under franchise or license agreements. There are twenty five CPK ASAP locations nine of which are company-owned and sixteen are franchised. Another company-owned concept is LA Food Show Grill & Bar which currently has one location in Manhattan Beach California. The company also has a licensing arrangement with Kraft Pizza Company which manufactures and distributes a line of California Pizza Kitchen premium frozen pizzas. California Pizza Kitchen Inc. has a market cap of $334.1 million; its shares were traded at around $13.84 with a P/E ratio of 20.1 and P/S ratio of 0.5. California Pizza Kitchen Inc. had an annual average earning growth of 12.4% over the past 5 years.
Highlight of Business Operations:
Total Revenues. Total revenues decreased by $9.2 million, or -5.3%, to $164.8 million in the third quarter of 2009 from $174.0 million in the third quarter of 2008 due to a $9.7 million decrease in restaurant sales partially offset by a $0.5 million net increase in Kraft royalties and franchise revenues. The decrease in restaurant sales was primarily due to the decrease in comparable restaurant sales in the third quarter of 2009. The 18-month comparable base full service restaurant sales decrease was 8.0%. We believe the reduced restaurant traffic was primarily due to macro economic factors impacting the casual dining industry. While Kraft royalties increased by 35.2%, international franchise revenues declined 18.0% as the result of lower franchise fees due to no international location openings in the third quarter of 2009 compared to three openings in the third quarter of 2008.
Total Revenues. Total revenues decreased by $18.5 million, or -3.6%, to $496.8 million in the first nine months of 2009 from $515.3 million in the first nine months of 2008 due to a $19.5 million decrease in restaurant sales partially offset by a $1.0 million net increase in Kraft royalties and franchise revenues. The decrease in restaurant sales was primarily due to the decrease in comparable restaurant sales in the first nine months of 2009. The 18-month comparable base full service restaurant sales decrease was 6.9%. We believe the reduced restaurant traffic was primarily due to macro economic factors impacting the casual dining industry. While Kraft royalties increased by 27.7%, domestic franchise revenues declined 3.8% resulting from reduced airport traffic. In addition, international franchise revenues declined 4.0% as the result of lower franchise fees due to the opening of three international locations in the first nine months of 2009 compared to seven locations in the first nine months of 2008.
Pre-opening costs. Pre-opening costs decreased by $1.8 million, or -48.6%, to $1.9 million in the first nine months of 2009 from $3.7 million in first nine months of 2008. We opened five full service restaurants in the first nine months of 2009 compared to opening twelve full service restaurants in the first nine months of 2008. Pre-opening costs include $0.3 million associated with ASC 840-20, Operating Leases (formerly FSP 13-1 Accounting for Rental Costs Incurred During a Construction Period), included in the pre-opening costs in the first nine months of 2009 compared to $0.9 million in the first nine months of 2008.
Net cash flows used in investing activities for the first nine months of 2009 decreased to $21.9 million from $43.2 million for the first nine months of 2008 due to decreased capital expenditures related to new restaurants, minor remodels and capitalized maintenance. We opened five new full service restaurants in the first nine months of 2009. Costs on average are less than $2.8 million for inline restaurants, our predominant structure. For the nine months ended September 27, 2009 pre-opening, costs have been approximately $330,000 per new full service restaurant, excluding the impact of construction period rent. CPK/ASAPs, our fast casual concept, are approximately half the size of our full service restaurants. We currently have nine CPK/ASAP restaurants and have ceased all new development of company-owned CPK/ASAPs. Existing CPK/ASAP restaurants have been identified for conversion to full service restaurants or will close in line with lease terminations or exercise of early lease termination provisions.
In January 2008, the Company entered into a Second Amendment to its Amended and Restated Credit Agreement (the “Amendment”) with Bank of America to amend the Amended and Restated Credit Agreement dated June 30, 2004 (the “Original Credit Agreement”). The Amendment increased the revolving line of credit from $75.0 million to $100.0 million. On May 7, 2008, the Company replaced its $100.0 million credit facility by entering into a new five-year revolving credit facility (the “Facility”) with a syndicate of banks, featuring a maximum available borrowing capacity of $150.0 million. The Facility contains an uncommitted option to increase, subject to satisfaction of certain conditions, the maximum borrowing capacity by up to an additional $50.0 million. The Facility contains certain restrictive and financial covenants, including that the Company maintain a minimum consolidated fixed charge coverage ratio and a maximum lease adjusted leverage ratio. The Facility is guaranteed by one of the Company’s subsidiaries and stipulates certain events of default. Borrowings under the Facility bear interest at either the London Interbank Offering Rate (LIBOR) or the prime rate, at the Company’s option, plus a spread ranging from 100 to 150 basis points for LIBOR loans or zero to 25 basis points for prime rate loans. The Company also pays a commitment fee on the unused facility ranging from 20 to 30 basis points per annum. Both the interest rate spread and the commitment fee level depend on the lease adjusted leverage ratio as defined in the terms of the Facility. The Facility also includes a $15.0 million sublimit for standby letters of credit. As of September 27, 2009, the Company had borrowings outstanding under the Facility totaling $37.0 million with an average annual interest rate of 1.72%. Availability under the line of credit is also reduced by outstanding letters of credit totaling $6.6 million as of September 27, 2009, which are used to support the Company’s self-insurance programs. Available borrowings under the line of credit were $106.4 million as of September 27, 2009. The Facility matures in May 2013. As of September 27, 2009, the Company is in compliance with all debt covenants. The Company expects to use any excess cash generated in 2009 to pay down debt.
Net proceeds from issuance of common stock were $3.2 million for the first nine months of 2009 compared to $1.7 million for the first nine months of 2008 and consisted of purchases under our employee stock purchase plan of $0.9 million and $1.0 million, respectively, and common stock option exercises of $2.3 million and $0.7 million, respectively.
CPKI is in the portfolios of Kenneth Fisher of Fisher Asset Management, LLC.
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