California Pizza Kitchen Announces Financial Results for the Fourth Quarter and Fiscal Year Ended December 31, 2006

California Pizza Kitchen, Inc. (Nasdaq:CPKI) today reported revenues and net income for the fourth quarter and fiscal year ended December 31, 2006.

Highlights for the fourth quarter of 2006 relative to the same quarter a year ago were as follows:

Total revenues up approximately 16.4% to $146.0 million

Comparable restaurant sales increase of 6.9%

Net income of $3.7 million, or $0.19 per diluted share, including the effects of stock-based compensation expense and the October 6, 2005 lease accounting pronouncement

Highlights for the fiscal year ended 2006 relative to the fiscal year ended 2005 were as follows:

Total revenues up approximately 15.6% to $554.6 million

Comparable restaurant sales increase of 5.9%

Net income of $21.0 million, or $1.06 per diluted share, including the effects of stock-based compensation expense and the October 6, 2005 lease accounting pronouncement

Rick Rosenfield and Larry Flax, co-CEOs of California Pizza Kitchen, Inc., stated, “Fiscal year 2006 marked another period of significant financial and strategic progress for California Pizza Kitchen. Despite a mixed economy, our full service comparable restaurant sales ranked among the best in the industry and we experienced record store volumes at our new restaurants. We credit the lifestyle component of our brand, a sustainable culture of service and our dedication to guest satisfaction and menu innovation. In combination, these efforts allow us to form lasting relationships with our core customers while adding thousands of new guests each year.”

Average weekly sales for the Company’s 166 full service restaurants increased 4.9% to a record-setting $65,858 for the fourth quarter of 2006 compared to $62,801 for the same quarter last year.

In the fourth quarter of 2006, the Company added nine full service restaurants and two CPK/ASAP restaurants. Full service restaurant openings included Foxwoods Resort Casino in Mashantucket, Connecticut; Boulder, Colorado; Hunt Valley, Maryland; Glendale, Wisconsin; Vista, California; Chula Vista, California; Estero, Florida; West Covina, California; and Honolulu, Hawaii. CPK/ASAP new openings included Elmhurst, New York and Sherman Oaks, California.

Rosenfield and Flax continued, “In 2007, our domestic full service restaurants will continue to be our focus while we refine the ASAP brand over the next 12 to 18 months. In the meantime, our overall business continues to gather momentum and high-margin brand extensions have emerged as a significant opportunity. Specifically, as our announcement today illustrates, we’ve extended our domestic franchise agreement with HMSHost and strengthened our international footprint with a long-term franchise plan in Mexico and a letter of intent for South Korea. It’s our agreement with Kraft that’s currently the cornerstone of our licensing success as 2006 pretax income increased by approximately 82% to $3.7 million. We’re excited to be developing other products with Kraft in the future which will continue to leverage our brand equity. In combination, these initiatives make CPK unique and add increasing value as we execute our development plan.”

The Company also updated guidance for fiscal 2007 based on the following assumptions:

Restaurant revenue growth of approximately 18.0% to 20.0%

Comparable restaurant sales growth of approximately 4.5% to 5.5%

16 to 18 new full service restaurants

Four franchised locations

Four new ASAP restaurants

One new LA Food Show restaurant

Earnings per diluted share of $1.31-$1.33

For the first quarter of 2007, the Company expects to add two full service restaurants, one international location in Japan and has already opened two CPK/ASAP restaurants. These openings, together with a comparable restaurant sales increase of 3.0% to 4.0%, are expected to result in first quarter earnings per diluted share of $0.17-$0.19.

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 $13.07. As of February 15, 2007 the Company operates, licenses or franchises 207 restaurants, of which 178 are company-owned and 29 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

Year Ended

December 31,

January 1,

December 31,

January 1,

2006 

2006 

2006 

2006 

 

Statement of Income:

 

Revenues:

Restaurant sales

$ 143,972 

$ 123,807 

$ 547,968 

$ 474,738 

Franchise and other revenues

1,999 

1,559 

6,633 

4,861 

Total revenues

145,971 

125,366 

554,601 

479,599 

 

Costs and expenses:

Food, beverage and paper supplies

35,686 

31,274 

135,848 

118,480 

Labor (1)

52,103 

44,798 

199,744 

173,751 

Direct operating and occupancy

29,460 

24,122 

108,558 

92,827 

Cost of sales

117,249 

100,194 

444,150 

385,058 

 

General and administrative (2)

10,670 

12,388 

43,320 

36,298 

Depreciation and amortization

8,061 

6,875 

29,489 

25,440 

Pre-opening costs

4,419 

993 

6,964 

4,051 

Loss on impairment of property and equipment

- 

- 

- 

1,160 

Store closure costs

707 

(618)

707 

152 

Legal settlement reserve

- 

600 

- 

600 

 

 

 

 

Total costs and expenses

141,106 

120,432 

524,630 

452,759 

 

Operating income

4,865 

4,934 

29,971 

26,840 

 

Other income (expense):

Interest income

52 

163 

718 

739 

Other income

- 

- 

- 

1,105 

Equity in net loss of unconsolidated joint venture

- 

- 

- 

(22)

Total other income

52 

163 

718 

1,822 

 

Income before income tax provision

4,917 

5,097 

30,689 

28,662 

Income tax provision

1,186 

1,619 

9,689 

9,172 

Net income

$ 3,731 

$ 3,478 

$ 21,000 

$ 19,490 

 

Net income per common share:

Basic

$ 0.20 

$ 0.18 

$ 1.08 

$ 1.01 

Diluted

$ 0.19 

$ 0.17 

$ 1.06 

$ 0.99 

 

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

 

Basic

19,061 

19,503 

19,412 

19,379 

Diluted

19,638 

20,088 

19,878 

19,738 

 

Operating Data:

Restaurants open at end of period

205 

188 

205 

188 

Company-owned full service restaurants open at end of period

166 

151 

166 

151 

Average weekly company-owned full service restaurant sales

$ 65,858 

$ 62,801 

$ 65,406 

$ 62,383 

18 month comparable company-owned restaurant sales increase

6.9%

5.3%

5.9%

7.5%

 

 

 

(1) Labor expense for the three and twelve months ended December 31, 2006 includes approximately $210,000 and $917,000 of stock-based compensation, respectively, compared to none in the three and twelve months ended January 1, 2006, respectively.

(2) General and administrative expense for the three and twelve months ended December 31, 2006 includes approximately $1.1 million and $5.0 million of stock-based compensation, respectively, compared to $3.6 million in each of the three and twelve months ended January 1, 2006, respectively.

 

 

Quarter Ended

Year Ended

December 31,

January 1,

December 31,

January 1,

2006 

2006 

2006 

2006 

 

Statement of Income Percentages (1):

 

Revenues:

Restaurant sales

98.6%

98.8%

98.8%

99.0%

Franchise and other revenues

1.4%

1.2%

1.2%

1.0%

Total revenues

100.0%

100.0%

100.0%

100.0%

 

Costs and expenses:

Food, beverage and paper supplies

24.8%

25.3%

24.8%

25.0%

Labor (2)

36.2%

36.2%

36.5%

36.6%

Direct operating and occupancy

20.5%

19.5%

19.8%

19.6%

Cost of sales

81.4%

80.9%

81.1%

81.1%

 

General and administrative (3)

7.3%

9.9%

7.8%

7.6%

Depreciation and amortization

5.5%

5.5%

5.3%

5.3%

Pre-opening costs

3.0%

0.8%

1.3%

0.8%

Loss on impairment of property and equipment

0.0%

0.0%

0.0%

0.2%

Store closure costs

0.5%

-0.5%

0.1%

0.0%

Legal settlement reserve

0.0%

0.5%

0.0%

0.1%

 

 

 

 

Total costs and expenses

96.7%

96.1%

94.6%

94.4%

 

Operating income

3.3%

3.9%

5.4%

5.6%

 

Other income (expense):

Interest income

0.0%

0.1%

0.1%

0.2%

Other income

0.0%

0.0%

0.0%

0.2%

Equity in net loss of unconsolidated joint venture

0.0%

0.0%

0.0%

0.0%

Total other income

0.0%

0.1%

0.1%

0.4%

 

Income before income tax provision

3.4%

4.1%

5.5%

6.0%

Income tax provision

0.8%

1.3%

1.7%

1.9%

Net income

2.6%

2.8%

3.8%

4.1%

 

 

(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 20 basis points of stock-based compensation in each of the three and twelve months ended December 31, 2006, respectively, compared to none in each of the three and twelve months ended January 1, 2006.

(3) General and administrative percentage includes approximately 80 and 90 basis points of stock-based compensation in the three and twelve months ended December 31, 2006, respectively, compared to 290 and 80 basis points in the three and twelve months ended January 1, 2006, respectively.

 

Selected Consolidated Balance Sheet Information

(Dollars in thousands)

 

 

Selected Consolidated Balance Sheet Information

December 31,2006

January 1,2006

 

Cash and cash equivalents

$ 8,187 

$ 11,272 

Marketable securities

- 

11,408 

Total assets

310,513 

274,254 

Stockholders’ equity

208,343 

197,336 

 

California Pizza Kitchen, Inc.

Units Summary

 

 

Total Units at

Total Units at

Fourth Quarter 2006

October 1,2006

Opened

Acquired

Closed

December 31,2006

Company-owned full service domestic

158 

9 

1 

166 

Company-owned ASAP domestic

7 

2 

9 

Company-owned LA Food Show

1 

1 

Franchised domestic

17 

1 

16 

Franchised international

14 

 

 

 

 

 

1 

 

13 

Total

197 

 

11 

 

- 

 

3 

 

205 

 

 

California Pizza Kitchen, Inc.

Supplemental Information

 

Fourth Quarter 2006

# of Stores

 

 

 

Weekly SalesAverage

 

(,000)RestaurantSales

 

(,000)Cost ofSales (1)

 

Cost of Salesas a Percentageof Sales

 

Full Service Restaurants

Q4, 2006

167 

(2)

65,858 

139,478 

113,147 

81.1%

Q4, 2005

151 

62,801 

120,964 

97,674 

80.7%

Year over year change

4.9%

15.3%

15.8%

(40)

bps

 

ASAP Restaurants

Q4, 2006

9 

33,895 

3,467 

3,179 

91.7%

Q4, 2005

5 

30,282 

1,947 

1,699 

87.3%

Year over year change

11.9%

78.1%

87.1%

(440)

bps

 

LA Food Show

Q4, 2006

1 

79,024 

1,027 

923 

89.9%

Q4, 2005

1 

68,958 

896 

821 

91.6%

Year over year change

14.6%

14.6%

12.4%

170 

bps

 

Total restaurants

Q4, 2006

177 

64,471 

143,972 

117,249 

(3)

81.4%

Q4, 2005

157 

61,798 

123,807 

100,194 

80.9%

Year over year change

4.3%

16.3%

17.0%

(50)

bps

 

(1) Cost of sales includes food, beverage and paper supplies, labor, and direct operating and occupancy costs.

(2) Includes one store which closed on December 24, 2006.

(3) Cost of sales includes approximately $210,000, or 20 basis points, of stock-based compensation in the fourth quarter of 2006 compared to none in the fourth quarter of 2005.

California Pizza Kitchen, Inc.

Supplemental Information

 

Fiscal Year 2006

# of Stores

 

 

 

Weekly SalesAverage

 

(,000)RestaurantSales

 

(,000)Cost ofSales (1)

 

 

Cost of Salesas a Percentageof Sales

 

Full Service Restaurants

YTD, 2006

167 

(2)

65,406 

532,527 

430,419 

80.8%

YTD, 2005

151 

62,383 

465,190 

376,419 

80.9%

Year over year change

4.8%

14.5%

14.3%

10 

bps

 

ASAP Restaurants

YTD, 2006

9 

35,081 

11,436 

10,095 

88.3%

YTD, 2005

5 

29,592 

7,106 

6,302 

88.7%

Year over year change

18.5%

60.9%

60.2%

40 

bps

 

LA Food Show

YTD, 2006

1 

77,011 

4,005 

3,636 

90.8%

YTD, 2005

1 

67,834 

2,442 

2,337 

95.7%

Year over year change

13.5%

64.0%

55.6%

490 

bps

 

Total restaurants

YTD, 2006

177 

64,317 

547,968 

444,150 

(3)

81.1%

YTD, 2005

157 

61,390 

474,738 

385,058 

81.1%

Year over year change

4.8%

15.4%

15.3%

- 

bps

 

(1) Cost of sales includes food, beverage and paper supplies, labor, and direct operating and occupancy costs.

(2) Includes one store which closed on December 24, 2006.

(3) Cost of sales includes approximately $917,000, or 20 basis points, of stock-based compensation in the twelve months ended December 31, 2006 compared to none in the twelve months ended January 1, 2006.