Kids' movie lineup slows Chuck E. Cheese's momentum

Chuck E. Cheese's marketing and cost-cutting strategies are gaining some traction, as evidenced by its second quarter comp store sales, which were up 2.9 percent.

CEO Mike Magusiak provided highlights of these strategies during the company's earnings call Thursday afternoon. Although sales were up throughout Q2, he warned that July sales dropped by 2.3 percent, attributable to a "significant" increase in G and PG movie releases.

Box Office Mojo reported that box office receipts for G and PG-rated movies during July were up $261 million compared to the same period last year.

"The increase in box office receipts exceeded our total core store sales during the same time period by approximately 4.5 times," Magusiak said. "We believe that over the short period of time, kids' movies negatively impacted our sales but do not believe the impact will have a material impact on our fiscal year."

Marketing

With the Q2 results, Chuck E. Cheese's marketing shift – from kids to kids and parents – seems to be resonating. The company's marketing expenditures are expected to increase by about $6 million this year (to $41 million) compared to last year, anchored by an increase in national TV messaging.

"If you look at trip levels in dollars, in other words national media advertising on TV, we have a very strong plan in the second half of the year. Our advertising trips, the number of commercials that kids and parents will see, are up about 40 percent in the second half of this year versus the second half of last year," Magusiak said.

Chuck E. Cheese's is also trying to generate visits through its national "Every Kid's a Winner" promotion, in which each kid receives a peel off card when entering a restaurant that includes free tickets, tokens or a trip in the Ticket Blaster.

In Q4, the brand will partner with a kids' movie for its national release, another initiative to increase traffic.

Cost savings efforts

Putting some weight behind its marketing messaging isn't the only strategy that's starting to pay off for CEC. The company has also yielded results from its cost-cutting efforts including:

  • A revised pricing structure that includes reduced menu prices for certain food items, such as pizza and salads, which have been "more than offset by increased token prices," Magusiak said.
  • A reduction of the discounts on many coupon offers.
  • Modification of price and merchandise ticket categories from eight different categories to seven different categories resulting in an annualized cost reduction of approximately $1.2 million. The rollout of the modified ticket categories was completed in mid-March of this year.
  • A refinement of the brand's pizza dough is projected to reduce annual costs by $1.2 million. The crispier crust has reduced sodium content and "is an enhanced product," Magusiak said.
  • Reduction of other expenses, such as the implementation of required non-slip footwear for all employees, the installation of energy-efficient thermostats in approximately 200 stores and the reduction of some birthday party costs.

Consumer environment

When Magusiak was asked to share his perspective about the general consumer environment, he circled back to the movie metric.

"The reality is, our sales are volatile over a short period of time but they have really been consistent across the nation through the first half of the year and then we look at movies ... (which) increased $261 million," he said. "We've had a good first half of the year and maybe there are some consumer slowdown but the one factor that we've looked at more any other is the external factor of movies."

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