Chuck E. Cheese’s parent to revamp pizza

CEC sees lower profit but positive same-store sales in 4Q

Executives at CEC Entertainment Inc., parent to the 553-unit Chuck E. Cheese’s chain, said Thursday that an improved pizza product and planned remodels should help it continue same-store sales increases into this year.

CEC reported fourth-quarter net income fell 48 percent to $2.8 million, or 14 cents a share, from $5.4 million, or 24 cents a share, in the same period last year, which included an extra week. Revenue in the quarter, which ended Jan. 2, slipped 2.6 percent, to $182.8 million.

Same-store sales in the quarter were up 3.9 percent, exceeding CEC’s forecast of growth between 2 percent to 3 percent. The company forecast same-store sales increases of 1 percent to 2 percent for fiscal 2011.

Michael Magusiak, CEC’s president and chief executive, said in a call Thursday with securities analysts that the company is remodeling stores, growing sales of children’s birthday packages and promoting online coupons through network television advertising to build sales through value messages, including online coupons for pizza and tokens. He noted that online coupons have increased incremental guest visits.

A new pizza product is being rolled out in the first half of this year as part of a program that began earlier this month, Magusiak said. He said the pizza is a “substantially enhanced product,” which will be promoted through television ads, social media, couponing and in-store marketing.

“It is fresh dough,” he said. “From a cheese standpoint, we’re receiving blocks of cheese in our locations and we’re shredding the cheese so it’s very, very fresh, 100 percent mozzarella cheese.”

He said the cost of the new pizza “is neutral to potentially saving a little bit of money.”

Food costs on an annual basis will increase $1.5 million to $2 million in 2011. However, Magusiak said simplified back-of-the-house preparation procedures have resulted in savings from less waste and reduced labor.

Other highlights from the call:

Cheese prices: CEC said it paid about $1.55 a pound for cheese in the fourth quarter and forecast average cheddar block prices in a range of $1.60 to $1.80 per pound. “Cheese has spiked up in the last month or so, but we have been talking with our outside vendor and conversed with our folks in purchasing,” said Tiffany B. Kice, CEC’s chief financial officer. “We believe that price will be coming down.”

Marketing: Chuck E. Cheese’s website now offers an online version of the Ticket Blaster game and users receive a voucher to take to the brick-and-mortar store to get free game tickets. “We’re starting to market that on a national basis as just another reason for kids to go and visit Chuck E. Cheese’s,” Magusiak said.

Expansion: The company intends to open six stores in 2011, three of them relocations of existing stores. “We are aggressively looking across the United States and Canada, and we have about 70 targets that we are going after to open our new units,” Magusiak said. “Our returns off of our new stores have consistently been very strong.” New stores opened since 2006 produce average annual sales exceeding $2 million, he said.

Fiscal 2010 results: CEC posted net income of $54 million, or $2.55 per share for the year, compared with earnings of $61.2 million, or $2.67 per share, in 2009. Revenue totaled $817.2 million, down slightly from $818.3 million last year. Same-store sales increased 1.5 percent for 2010.

CEC Entertainment owns 507 Chuck E. Cheese’s restaurants in the United States and Canada and franchises 46.

Contact Ron Ruggless at [email protected]