Do sliding CPK comps mean a restaurant recession relapse?

June 21, 2010
Disappointing revised comp sales projections from California Pizza Kitchen have caused turmoil for its stockholders, and perhaps more uncertainty for the restaurant world in general.
On June 21, CPK revised its projected comparable fullservice sales for the second quarter from its previous projection of negative 2.5 percent to between negative 6 percent and 7 percent. Earnings also were slashed from 24 cents to 26 cents per diluted share to between 10 cents and 15 cents per diluted share. CPK traded at $18.89 at the close of June 18, and fell to the $16 range after the announcement.
The worst thing this plummeting could mean is a double-dip recession, according to a Reuters story addressing CPK's statement.
From the story:
Consumer spending appeared to be on the mend earlier this year and spending at popular restaurants was improving. Since then, stubbornly high U.S. unemployment and worries that Europe's debt crisis could usher in a double-dip recession have prompted some U.S. consumers to retreat.
But further analysis makes the company's struggling sales seem a little more compartmentalized. As a higher priced casual restaurant, it seems to have struggled comparatively more than top QSR pizza brands Domino's, Yum! Brands Pizza Hut, and Papa John's, whose earnings and same-store sales have improved overall since last fall.
Ironically, while $10-and-lower pizza deals from these top brands have seemed to help their earnings, couponing may have debilitated CPK. Last year at this time, they had rolled out "Thank You" cards that attracted customers with freebies from 10 percent off meals to $25,000 prizes. The program was not in place this year, and co-owners Larry Flax and Rick Rosenfield have partially attributed the projected losses to its absence. 
But perhaps the biggest component  of the slumping sales may be concept-specific. According to a story in the Los Angeles Times:
CPK said its May same-store sales alone were down 7.9% from a year earlier, a drop that "points to issues that can't be explained away by lapping a [promotion] or heavy California concentration" of the restaurants, [Jeff Farmer, who follows CPK for brokerage Jefferies & Co.,] said.

Topics: California Pizza Kitchen , Domino's Pizza , Papa John's , Pizza Hut

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