California Pizza Kitchen's
California Pizza's taste for speedy growth proved to be a recipe for disaster. The company accelerated expansion over the past couple years, adding 16 new properties in 2001, 18 in 2002, and 22 in 2003. Evidently, several of the new eateries were poorly situated. Sales averages at the new sites proved disappointing, while performance at pre-2002 properties continued to improve.
Following a thorough review and quick action by new management, it now looks like the worst is over. California Pizza managed to shut down two sites without further charges to earnings, and negotiated lower rents at other problem properties. Future write downs, if any, probably won't be so severe.
In 2004, the firm will put the brakes on growth and cut the ribbon on 10 locations. Further, this year's new restaurants won't open until the third and fourth quarters. The reduced openings and slower pace reflect a more deliberate site selection process by management, which feels it now has a good handle on the ingredients for success.
Like P.F. Chang's
That's a healthy improvement over earnings of $0.89 per share last year before the impairment charges. If management can maintain the 2.5% same-store sales growth it achieved in 2003, and deliver on its promises over the coming quarters, more investors may find the stock a worthy snack.
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Fool contributor Brian Gorman is a freelance writer in Chicago, Ill. He does not own shares of any companies mentioned in this article.