California Pizza Cooks Up Poor Excuses

CaliforniaPizza Kitchen (Nasdaq: CPKI  ) served up a preview of its fourth-quarter results yesterday, and investors found them less than palatable. The restaurant outfit's earnings warning should not cause anyone to panic, although the company's explanation for its sub-par showing may leave investors with a bad taste in their mouths.

The pizza specialist indicated that same-store sales for the fourth quarter were up 5.3%, a deceleration from the 7.7% growth in the comparable period of 2004, and below the firm's projection of between a 5.5% and 6.5% increase. What's more, the company is now expecting that fourth-quarter earnings per share will come in at $0.29, also below its recent forecast calling for EPS of between $0.30 and $0.31.

California Pizza's "miss" is pretty small, and so, from the standpoint of the health of the business, the numbers themselves do not appear to be alarming. However, two facts do make the earnings warning somewhat disconcerting. First, the fourth-quarter forecasts that California Pizza missed were provided by the company less than three months ago. This fact suggests that either management did not have a good handle on trends in the business or that unexpected developments late in the quarter were responsible for the loss.

In fact, California Pizza made clear why its results weren't up to snuff, and this brings us to the other important issue in the warning -- the firm's explanation for its soft performance. Specifically, the company blamed remodeling initiatives and hurricane-related store-closure days. Again, it seems like management should have been aware of these issues on Oct. 27 when it issued its forecast. Remodeling had been planned well in advance, so this is an odd excuse.

As for the hurricane part, admittedly, Wilma passed through Florida just three days before the forecast, but it still seems like there should have been enough time to make a worst-case estimate of the impact. Furthermore, just a small portion of the company's restaurants could have been impacted by Wilma. According to California Pizza's website, it has just sites 11 sites in Florida out of a total of 188 restaurants.

The latest earnings warning is no reason to abandon California Pizza's stock. But management's explanations for the miss should prompt investors to keep a close eye on trends in the business.

For more bubbly, crusty Foolishness, order up one of these:

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 510209, ~/Articles/ArticleHandler.aspx, 10/20/2014 7:57:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement