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CPK lowers outlook for 2Q

Blaming the still-volatile economy and comparisons with a popular promotion last year, California Pizza Kitchen Inc. on Monday significantly lowered its sales and profit outlook for the second quarter.

Shares in CPK plunged nearly 11 percent Monday after the company revised its forecast, closing at $16.83.

For the quarter ended July 4, CPK said it now expects earnings of 10 cents to 15 cents per share, with same-store sales projected to fall 6 percent to 7 percent. The company earlier had forecasted second-quarter earnings between 24 cents to 26 cents per share and a same-store sales decline of 0.5 percent to 2.5 percent.

In last year's second quarter, CPK earned 25 cents a share and recorded a 6.5-percent decline in same-store sales.

CPK said same-store sales were down 2.7 percent in April and down 7.9 percent in May. The less-than-expected results were blamed in part on comparisons with last spring, when the company promoted its Thank You Card Program, offering guests the opportunity to win prizes on return visits.

CPK did not offer the Thank You Card program in this year's second quarter, but "given the traction of the 2009 program," the company said it would resurrect it in the third quarter with new prizes expected to drive traffic.

“Despite the Thank You Card Program timing shift, our second quarter operational momentum remains very strong,” said co-chief executives Rick Rosenfield and Larry Flax. “Our sales initiatives including our call center, expanded wine selections, catering program and Small Cravings menu are achieving excellent results, and our overall guest satisfaction scores are at record highs."

Rosenfield and Flax also noted that a new menu rolled out last week was performing well.

“We are committed to maximizing long-term value for our shareholders and driving the brand through innovation and strategies, both inside and outside the restaurants’ four walls,” Flax and Rosenfield said.

Analysts, however, said CPK's strong presence in the economically hard-hit market of California remains a challenge in rebuilding sales.

John Glass of Morgan Stanley said in a note to investors that “destination oriented” brands — such as Darden Restaurants’ Olive Garden, Red Lobster and Longhorn Steakhouse brands, as well as P.F. Chang’s China Bistro — are outpacing “convenience brands” such as CPK, Red Robin and Chili’s.

“We also believe convenience-oriented brands are losing share as consumers limit their dining out to more special occasions,” Glass wrote.

In addition to plans to bring back the Thank You Card program in the third quarter, CPK said it would launch two to three new licensed products outside the frozen category in August, though officials declined to offer details. So far, CPK's branded retail products have included frozen pizzas and flatbread sandwiches.

CPK also said it was continuing to explore strategic options — which the company said earlier could include a possible sale — but that it would not comment on plans until the board approves a course of action.

The company said it would release full second-quarter results on Aug. 5.

Los Angeles-based CPK operates, licenses or franchises 253 restaurants including 196 company owned California Pizza Kitchen locations, seven ASAP-brand outlets and two LA Food Show restaurants.

Contact Lisa Jennings at [email protected].

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