Is Chuck E. Cheese Still a Rock Star?

Normally when you see sales and earnings down for a restaurant chain these days, it's easy to toss it aside as another victim of the soft casual-dining space. Save some room on your plate for CEC Entertainment (NYSE: CEC  ) . Its third-quarter earnings may look weak on the surface, but the results actually confirm its solid comeback to rock stardom.

Background
The lovable furry rodent was given a makeover in 2012. The executives turned the once nerdy mouse into a "hip, electric-guitar-playing rock star." Since that time, sales, same-store sales, and net income have been surging. While CEC Entertainment was busy upgrading its kid-friendly image, McDonald's (NYSE: MCD  ) and Burger King (NYSE: BKW  ) were leaving the kids home with the babysitter, instead focusing on the adult demographic while ditching their own kid-friendly mascots.

McDonald's is doing "OK" with same-store sales up 0.9% last quarter.  To stimulate growth, McDonald's is focusing on reimaging its restaurants into a more adult-friendly Starbucks-like atmosphere.  By the end of this year, it will have reimaged 3,600 restaurants total for 2012 and 2013.  McDonald's sees an average of 6% to 7% bump in sales for reimaged restaurants.  

Burger King also saw 0.9% same-store sales, but its systemwide revenue was up 4.9% due to its aggressive expansion of new restaurants.  Burger King is for now a growth story based on new openings around the world coupled with adding innovative new menu items that target adults such as SATISFRIES.  Burger King reported a spike in guest traffic following this introduction.

Given that McDonald's and Burger King are seeing increased sales from moves it makes that focus on adults, I wouldn't expect these two to bring back their kid-friendly mascots any time soon.

CEC Entertainment Results
CEC Entertainment saw sales dip a little, down 0.4% to $195.9 million. Net income dipped a bit more, down 5.1% to $7.4 million with earnings per share of $0.43. Same-store sales had a drop of 2.1%. That's the worst part, however, it was expected.

CEC Entertainment competes for kids' eyes as well as their mouths, and there was a massive surge in box office movie revenue for children over the summer quarter. The company had $453 million in screen revenue in July alone compared to $192 million the year before. This resulted in a 2.3% drop in sales, also previously brought up by the company. This means that August naturally saw a bit of a ripple effect from July, yet still, August and September actually saw same-store sales increase since the overall drop was less than that of July.

As confirmation of July marking the bottom, CEO Michael H. Magusiak stated that October was a positive month for same-store sales. Though he only guided for flat same-store sales for the fourth quarter, CEC Entertainment guided for 12-15 new store openings for 2014 compared to eight to nine for 2013. The most telling part for the future was a 13% increase in the quarterly dividend to $0.27. Dividend raises tend to speak louder than words about management's confidence.

Cheese is "in"
While the majority (54.9%) of CEC Entertainment's revenue actually came from entertainment and merchandise sales in the restaurants, pizza and soda help bring the kids in. Americans are ordering up pizza in record numbers. Domino's Pizza (NYSE: DPZ  ) itself recently reported rock-star results. Same-store sales were up 5.4%, EPS was up 18.6%, and overall sales were up 6.9%. These are big growth numbers considering that Domino's Pizza is already the world leader in pizza delivery. CEC Entertainment shareholders should take comfort as Domino's results suggest that pizza is still a big favorite among consumers. That should help continue to bring kids in the doors. 

Final foolish thoughts
Watch the same-store sales trends for CEC Entertainment. Any time a company changes its marketing or image approach, it takes a risk of backfire. So far CEC Entertainment's long-term growth appears on track and should be evidenced in future quarters as long as the overall positive trends continue. All of these trends make CEC Entertainment worthy of a closer look by Foolish investors and as always they should do their own research before making investment decisions. 

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