Chuck E. Cheese Looks to Chuck It In

Now could be the right time to take the family-dining chain private

Jan 8, 2014 at 4:05PM

Although it might have tried to be quiet as a mouse in exploring the possibilities, restaurant operator CEC Entertainment (NYSE:CEC) is looking to take its 567-store Chuck E. Cheese chain private, according to Reuters. 


Skee-ball at Chuck E. Cheese. Source: Wikimedia Commons.

Like a number of other family-dining chains, CEC finds it difficult to improve weak traffic trends in the face of soft consumer-spending habits. Third-quarter earnings of $0.43 per share released at the end of October missed analyst expectations of $0.49 per share and fell short of the year-ago period's $0.45 per share. Despite lower revenues that were in line with Wall Street's forecasts, same-store sales fell 2.1% amid an 11% drop in birthday-party sales. Birthday parties typically comprise 15% to 20% of Chuck E. Cheese's comps, and increasing competition from kids' movies and entertainment options is taking a toll on operations.

Chuck E. Cheese family-dining restaurants are known for their arcade-like atmosphere with games of chance, rides, and play areas, as well as animatronic musical characters. It's a unique dining concept. Food isn't exactly gourmet, relying as the menu does on pizza and sandwiches, but families aren't expecting white-glove service and four-star fare when they go.

But the movies have been a particular source of conflict. Management noted during its quarterly conference call that G- and PG-rated movies saw a $320 million increase in revenues, up 65% from the year-ago quarter, a difficult hurdle to surmount when the restaurant's entire revenues for the period were less than $200 million.

Yet the strain highlights the problems family-dining restaurants in general have faced. Industry analysts at NPD Group say restaurant traffic remained flat throughout 2013, but only because quick-serve restaurants enjoyed an 8% jump in traffic for the 12-month period ending in September. Competing categories like casual dining, midscale, and family dining actually haven't had any gains at all over the past few years. 

Ruby Tuesday recently hired Goldman Sachs to explore a possible sale to private equity because it's languishing like CEC with comps falling sharply, while Darden Restaurants is looking to spin off or sell its Red Lobster chain for similar reasons. Last November the owner of Carl's Jr. and Hardees sold out to a P/E firm for as much as $1.75 billion.

Chuck E. Cheese has also found itself forced to cut costs in ways that can't be good for long-term growth. For example, last quarter it realized an approximate 20% reduction in dough usage by making its crust thinner. It can spin that as enhancing the taste by making it crispier, but when you need to start skimping on ingredients, it means you've baked in trouble.

Shares of the restaurant operator are getting a big bounce from the report today, up more than 13% in midday trading. With heightened interest in the space by private equity, and despite the growing inventory of concepts that are becoming available, CEC Entertainment may still find a decent premium that will prove going private is not some Mickey Mouse idea.

Cat and mouse
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of Darden Restaurants. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers