California Pizza Kitchen lowers earnings guidance
Shares of California Pizza Kitchen, Inc. (Nasdaq: CPKI) are getting pummeled to a near 52-week low this morning after the restaurant chain lowered its fourth-quarter and 2008 guidance.
Shares of California Pizza Kitchen toppled 17.20%, or $2.11, to $10.16 at 11:42 a.m. ET. Shares of California Pizza Kitchen have been trading in the range $9.32 to $25.23 for the past 52 weeks.
The Los Angeles, Calif.-based company reduced it earnings guidance to the range of $0.16 to $0.18 per share from the range of $0.22 to $0.23 per share. Twelve analysts surveyed by Thomson Financial were on average forecasting earnings of $0.23 per share for the fourth quarter.
The restaurant chain said it is also lowering its outlook for fiscal 2008 due to continuing challenges in the macroeconomic environment. It is revising earnings estimates for fiscal 2008 to the range of $0.54 to $0.60 per share, compared with previous guidance of $0.85 to $0.92 per share. Thirteen analysts surveyed by Thomson Financial were on average projecting earnings of $0.90 for fiscal 2008.
On account of the lowered guidance, Robert W. Baird analyst David Tarantino lowered his fourth-quarter EPS estimate by $0.05 to $0.18 and reduced his 2008 estimate by $0.30 to $0.60 per share. Howard Penney of Friedman, Billings & Ramsey cut his price target to $15 from $18.
“This quarter's results and management's new lower 2008 expectations indicate that this environment seems to be even worse than expected and not even a differentiated, well-run concept can avoid feeling the pain,” Penny wrote in a research note. “The implications for the rest of casual dining, especially less-differentiated chains, are very negative. Investors beware — we believe it will be a rough fourth quarter.”
While “extremely disappointed” with fourth-quarter results and the revised 2008 guidance, Tarantino says he is retaining his “outperform” rating on the stock, as he expects the stock to trade well below his revised price target of $13.
“Our rating reflects a positive view of California Pizza Kitchen’s long-term opportunities and valuation,” Tarantino wrote in a research note. “While we expect external headwinds to restrict near-term trends, we think California Pizza Kitchen can perform well on a relative basis due to its strong value proposition.”
Over the next three to give years (after 2008), Tarantino says he expects California Pizza Kitchen to grow revenue 13% to16% and EPS 17% to 21% annually (on average) through unit expansion, same-store growth, increased franchising and licensing, and margin improvement.
Comparable restaurant sales increased approximately 1.8% during the quarter, less than the range the company had forecasted of an increase of 2.0% to 3.0%. The current quarter’s comps compare with an increase of 6.9% in the fourth quarter last year.
Additionally, California Pizza Kitchen is now forecasting negative comparable restaurant sales for 2008 of 1% to 0.0%, compared with the previous projection range for a comparable restaurant sales increase of 2% to 3%.
Tarantino says he expects industry traffic to become less negative after the first quarter, which the analyst says suggests potential for upside. He estimates each incremental 1% of same-store growth could add $0.10 to $0.12 to EPS compared with the company’s guidance.
California Pizza Kitchen (CPKI) will release fourth-quarter earnings on Feb. 14.
